After a split decision to cut rates for the third time, the FOMC meeting minutes reveal a balanced view. Central bankers are now more or less on the same page for what lies ahead. According to the text, most officials saw rates as ‘well-calibrated’ following the latest move. In that vein, most policymakers believed it would take a ‘material reassessment of the outlook’ to alter that view. This is something that Chairman Powell revealed in his post-meeting press conference.
Many participants at the meeting cited improvements in spending on interest-rate sensitive sectors and residential investment. These two areas of the economy looked soft earlier in the year. Several went a step further. The data and models show that the likelihood of a recession had decreased heading into that last rate cut. However, not all agreed that the Fed was entirely out of the woods just yet. Trade-war, global growth slowdown, and low inflation tick near-term risks and still skewed to the downside.
Overall, the minutes suggest there’s more harmony amongst Fed voters on the path forward. This reinforces our view that the central bank is likely on pause unless a significant downside risk emerges. The stand-pat theme in the minutes has seen yields rise a touch and the currency gain and comes against fed funds futures still priced for another cut mid-next year.
There’s been so much from Powell (FOMC minutes, Semi-annual Testimony – twice) and a myriad of Fed speakers in past weeks, all generally speaking to the on-hold view. While there is some interest in the diversity of views, there otherwise hasn’t been anything of real market-moving significance dispatched in the minutes.
On the Radar
One key market dynamic that could impact the FED’s on hold stance is the continuing trade tensions with China. Overnight Asian equity markets slipped again after the US Congress’s lower house passed a bill supporting Hong Kong protestors. Reports suggest that President Trump will sign it into law. The bill added to concerns that a US-China trade deal may not be done this year. However, markets pared some losses after China’s chief negotiator said that he was still “cautiously optimistic.”
From a technical and trading perspective, the USD Index continues to rotate around the range pivot. A close below 96.80 would be a bearish development suggesting that prices will likely retreat to test range support back down towards the 97.00 area. Only a daily close above back above the 98.00 level would indicate that bulls are back in control opening a retest of the current swing high at 98.40 if this level can be recaptured on a closing basis look for further upside momentum to test the range resistance towards 99.00.