September Fed Meeting Minutes Preview

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The Federal Reserve will be releasing its meeting minutes from the September 18th monetary policy meeting.

The Federal open market committee (FOMC) cut interest rates by 25 basis points to 1.75% – 2.00%.

This was the second rate cut from the Fed this year. In its monetary policy statement, the Fed said that slowing global growth and worsening trade tensions led it to deliver a rate cut.

However, the rate cut had dissenting votes this time.

While seven members of the FOMC voted for a rate cut (including Fed Chair, Jerome Powell), two members (Esther George and Eric Rosengren) wanted to leave rates unchanged.

Both these members also voted against a rate hike at the July Fed meeting.

One member of the FOMC (James Bullard) wanted to cut rates even further.

July’s rate cut was a major shift in the Fed’s monetary policy from just last year. The rate cuts come amid President Trump’s call for the Fed to lower the Fed funds rate by a full percentage point.

U.S. Fed Funds Rate, September 2019
U.S. Fed Funds Rate, September 2019

The central bank started its rate cut in July. But, back then, it said that it was by no means shifting to a dovish policy.

Fed Chair Powell dubbed the first rate cut as being a mere adjustment to rates.

Despite delivering a second rate cut in September, the Fed did not acknowledge the subtle shifts. The central bank only pointed out that there were uncertainties to the economic outlook.

Meeting Minutes: What to Look Out For

While the meeting minutes might not offer any new information, investors will be looking to the Fed member deliberations.

The Federal Reserve shifted its view of the expected future rate cuts through the dot plot projections.

The central bank maintained that it does not expect further rate cuts into 2020. This comes despite 7 Fed officials hinting to at least one more rate cut this year (which would total 3 for the year).

The meeting minutes could show the Fed member’s view on the interest rates which could eventually point to the health of the US economy.

The central bank’s statement in September puts US economic growth to an average of around 2.2% for 2019. This is slightly higher from the 2.1% increase that was given in the June Fed projections.

Meanwhile, the PCE, the Fed’s preferred gauge of inflation, remained unchanged at 1.5% for this year, while the core PCE was also the same at 1.8%.

At the meeting, the central bank did not, however, make many references to its repo operations. Around the September Fed meeting, a short term crunch in cash led to the overnight rates spiking higher.

At one point, the Fed funds rates also broke out from its band of 2.25% – 2.00%. The bank had to step in with its reverse repo agreements in order to inject liquidity into the markets.

While most of the liquidity problems were blamed on technical reasons, the Fed was blindsided by the issue, despite anticipating the liquidity problem.

It is unlikely that the repo agreements will make it to the meeting minutes, but any references to the operations could be surprising.

Looking Ahead

It is quite possible that investors will be looking to the upcoming data. The current economic reports cover the month of September. This marks the end to the third quarter.

The general market perception is that US growth could slow.

With the ISM manufacturing PMI contracting for the second month, focus will shift to the Fed to see if another rate cut is due at the end of this year.

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