FOMC Jan ’20 Minutes Preview

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The Federal Reserve Bank will be releasing the meeting minutes from the January Fed meeting. The central bank held its monetary policy meeting on January 29th, 2020. At the meeting, the central bank voted to keep interest rates steady at the current levels of 1.50% – 1.75%.

Today’s meeting minutes cover the Fed decision.

By all means, investors do not expect to see any new information from the minutes. This view comes following the Fed Chair, Jerome Powell’s testimony to the US Congress last week.

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In his testimony, the Fed Chair said that central bank officials were keeping an eye on the coronavirus and its impact on the economy. In regards to the United States’ monetary policy, the central bank chief did not give out any new information.

Heading into the year, the Fed looks towards keeping its monetary policy unchanged through the course of the year. This comes amid a bout of weakness in the US economic growth.

The US economy fell from a growth rate of about 3% to close to 2% on average into the final quarter of the year 2019. Similar growth trends are forecast into the upcoming quarters as well.

At the same time, the Federal Reserve also continues with its open market operations. So far the US economy is showing signs of bucking the trend. The recent pick up in the ISM manufacturing PMI was a welcome cheer.

A modest pick up in the inflation figures were also welcome while the US labor market continues to surge to new highs.

Minutes Could Focus on Fed’s Inflation Target

At the January meeting, the FOMC statement stressed the fact that policymakers will be focusing on inflation. Given the long patch of weak price pressures, the Fed has taken a symmetrical approach.

This means that officials are willing to tolerate an overshoot of the inflation target. This is done in order to compensate for the long bout of weakness.

For the moment, Fed officials are likely to remain on the sidelines. Wage growth could continue to maintain its current trend.

However, so far there are no signs that wages will continue to rise. On average, the yearly wage growth is staying close to the 2.9% – 3.2% range. Recent inflation data saw a modest increase in price pressures.

The increase comes on the back of weaker gasoline prices during the month. Due to the sharp fall in global oil prices, US gasoline prices also fell sharply during the period.

As a result, with the Fed opting to keep rates steady, the official statement is unlikely to deviate from the narrative that the markets already know about.

However, we could see some downside risks coming due to the economic impact of the coronavirus. With China being hit, the economic assessment for the world’s second-largest economy remains somewhat grim.

Impact of the FOMC Meeting Minutes

Given the above, we do not expect to see much of volatility from the markets on the FOMC meeting minutes. The equity markets, although near highs remain a bit cautious, reflecting the ground reality.

On the other hand, there is also a global flight to safety as well. These trends could very well remain into the Fed meeting minutes release.

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