US stocks continue to rally as FOMC shows no sign of raising rates just yet No great hawkish surprises from the Federal Reserve this week as minutes from the central bank’s June policy meeting offered little fresh impetus to markets.
No great hawkish surprises from
the Federal Reserve this week as minutes from the central bank’s June policy
meeting offered little fresh impetus to markets.
There was no real indication
about when rates would increase, though the June 2015 Fed Funds futures was
trading a little higher as the minutes were digested later on.
What did come out of the minutes
was a broad consensus among policymakers to end stimulus in October, though
there was some debate about whether the final taper would come in a single $15
billion reduction or in a $10 billion reduction followed by a $5 billion
reduction at the following meeting.
“While the current asset purchase
program is not on a preset course, participants generally agreed that if the
economy evolved as they anticipated, the program would likely be completed
later this year," the minutes read.
Despite the woeful first quarter
GDP figures, the Fed seems united in its opinion that the US economy is
John Hardy, Head of FX Strategy
at Saxo, says the overall impression of the minutes was dovish, though the
implications of this should be limited for now.
He does note that there was some
concern expressed on financial stability, though markets seemed to shrug this
conditions appeared be supporting economic activity," the minutes said.
"However, participants also discussed whether some recent trends in
financial markets might suggest that investors were not appropriately taking
account of risks in their investment decisions."
Hardy suggests that the
insouciance from the Fed is setting the tone. “Perhaps the lack of a feeling
that the FOMC is prepared to do anything besides ‘note their concern’ is the
reason that the June 2015 Fed Funds futures is trading a few ticks higher as
the minutes were more thoroughly analysed last night."
In terms of market response, the
US dollar was broadly lower, as “some thought they might wax more hawkish”,
says Hardy. Though he also notes that on the longer-term outlook the dollar
recovery is “on schedule”. The dovish FOMC meeting in June doesn’t affect
the rate picture or the taper and supportive data will mean a continued
recovery in the dollar, he argues.
Meanwhile, stocks rose as markets
viewed policymakers as being in no hurry to increase rates, with the Dow
climbing 0.5 per cent.
Fed chair Janet Yellen's testimony before Congress on the state of
the economy and monetary policy on Tuesday (July 15th) is the next thing on the