Meeting Minutes from the Federal Reserve’s July rate decision were released yesterday, and similar to the scenario from April/May, the minutes showed a slightly more-hawkish read from the bank regarding near-term rate hikes. The minutes suggested that a rate hike could be possible as early as the bank’s next meeting in September, but many members of the Fed weren’t convinced that a rate hike was necessary in July as they lacked confidence that inflation was on track to meet the bank’s 2% target. This comes fresh on the heels of two different Fed members talking up the possibility of a move next month as both Mr. William Dudley and Mr. Dennis Lockhart had pointed to September for the bank’s next potential move in the build-up to yesterday’s release of July Minutes.
Despite all of this, markets are continuing to expect the Fed to display the same pattern of passiveness that they’ve become well-known for after eight years of ‘emergency-like monetary policy.’ Ahead of the Minutes release yesterday, probabilities for a rate hike in September were at 12%, while December was at 50%. After the release of those minutes, the probability of a hike in September rose to 18%. But this didn’t last for long, as rate expectations have continued to edge lower in the aftermath of the release, with September now clocking-in at 15% with December edging lower to 41.7%. And as those rate expectations edged lower through the Asian and European sessions, the US Dollar fell along with them:
Created with Marketscope/Trading Station II; prepared by James Stanley
This is what’s different from the April/May Minutes release; as the warnings from the Fed that markets may be ‘underpricing’ the probability of a move at the bank’s next meeting had prodded a fairly significant bout of USD strength through May, but thus far, have failed to inspire much strength in the Greenback after the same claims at the July meeting.
