Inflation Concerns in FOMC Minutes Send Commodity Dollars Down
The FOMC minutes yesterday confirmed the concerns about inflation, which helped the USD, although we have seen some soft numbers since then
Since the softer inflation figures late last week, the USD has been on a retreat. Although on Tuesday we saw a standstill as traders were waiting for the FOMC minutes from the last FED meeting in June when they kept interest rates on hold. Several FED members mentioned that although the household sector still had a significant amount of savings accumulated during the pandemic, there were indications that consumers were facing tighter budget constraints. This was attributed to high inflation and, particularly for low-income households, depleted savings
Some participants reported that businesses in their respective districts experienced less difficulty in hiring and retaining workers, with lower turnover rates and fewer layoffs. A few participants highlighted potential upward risks to housing services inflation. They pointed to factors such as near-record low inventories of homes for sale, strong housing demand, and rents for new leases showing less deceleration than expected in recent measures.
The Minutes of the June 13-14 FOMC Decision
- Some participants favored or could have favored 25 bps hike
- Those favoring hike noted tight labor market, stronger economic momentum and little evidence of inflation on path to 2%
- Fed staff saw a mild recession likely to start later this year
- Almost all participants judged it appropriate or acceptable to leave rates unchanged
- A few participants noted potential for upward pressure on money market rates as Treasury increased bill issuance
- Almost all participants stated that upside risks to inflation might become unanchored
- The staff’s inflation forecast wmas little revised relative to the previous projection with inflation at 3.0% this year, with core inflation at 3.7%
- On balance, the staff saw the risks around the baseline inflation forecast as tilted to the upside
- In 2025, both total and core PCE price inflation were expected to be close to 2 percent.
- Full text
There wasn’t anything surprising or notable here. The initial reaction in markets has been almost nil although, there are concerns about inflation. Nonetheless, last week’s inflation numbers should have cooled these concerns. Federal Reserve Bank of New York President John Williams is participating in a moderated discussion before the 2023 Annual Meeting of the Central Bank Research Association (CEBRA). He made some hawkish comments, although he is a hawk at the FED, but risk sentiment turned negative after that nonetheless. Commodity dollars such as the NZD and the CAD ended up lower after that.
Williams Main Comments via Reuters:
- I’m not content with where inflation is right now
- Fighting inflation remains Fed’s m.ain job
- Sees progress on inflation but price pressures still too high
- Pandemic factors driving inflation have eased
- Economy still has strong demand for labor
- ‘A bit of a surprise” to see resilience of housing market
- Economy has handled rate hikes ‘reasonably well’
- Surprised by the stability of natural rate level
Williams giving indications that the FOMC has not finished hiking yet. The committee meets later this month and a 25bp rate hike is on the cards in for now, awaiting more data in the weeks ahead though. Starting with jobs data this coming Friday then CPI on the 12th.
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