Jerome Powell, Fed chairman The Federal Reserve (Fed) released the minutes of the last meeting on Wednesday evening, when it was decided to raise interest rates by 75 basis points. Policy makers agreed that high inflation poses a major threat to the economy and forces more aggressive monetary actions. The dollar and Wall Street exchange rates did not react much to the publication, and the USD / PLN currency pair is moving around PLN 4.70.
FOMC protocols without surprises. Confirmation of another hike by 75 bp in July
Markets are almost fully pricing in another 75bp rate hike in July, as the minutes agree. Investors pay close attention to the discussions surrounding the September decision.
Summary of the most important points in minutes:
High inflation justifies high interest rates Most participants saw a risk to economic growth, including the possibility that rate hikes by the Fed would have a greater than expected economic impact. that a 50 or 75bp hike is likely to be appropriate in July Many participants assessed that there was a significant risk of a persistence of higher inflation should the public question the Fed’s determination. The document does not mention the 100 basis points that the market was worried about at the time. Comments on the “greater than expected” economic impact and the strengthening of inflation expectations deserve attention. Since the meeting it is clearly visible that rate hikes have a greater impact and that inflation expectations are going down. The FOMC stands for the Federal Open Market Committee, which holds 8 meetings a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses threats to its long-term goals of price stability and sustainable economic growth. FOMC Minutes are published by the Federal Reserve Board of Governors and provide a clear indication of future US interest rate policy. – The minutes seem quite hawkish, as was the case with the decision itself. Based on the minutes alone, the Fed may want to spot signs of declining inflation before changing its approach. Of course, we have a huge risk of a recession, but inflation is not slowing down at the moment (only a slight retraction of the core PCE). Market reaction very slight, EUR / USD slightly rebounds, but remains ultra-low, while the S&P 500 also slightly upwards, which may be related to the fact that there is no clear signal that 75bp is guaranteed in July – commented analysts XTB.
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The dollar exchange rate and the American stock exchange without much reaction
In the first reaction to the publication of the FOMC protocols, the dollar was weakening, but the downward move was marginal, and the DXY index is still hovering close to 107 points. There was also no greater reaction on the US stock exchange, where the benchmark S&P 500 is rising by a modest 0.27% and is currently trading at 3841.49 points. On the other hand, US bond yields are more responsive. In the case of 10-year-olds, an increase of 3.7% to the level of 2.913% is visible. As for the USD / PLN currency pair, it has been growing by over 3% since the beginning of the day and is now around PLN 4.70. However, the FOMC protocols themselves did not change the power distribution of the dollar against the zloty.
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