FOMC: Mixed minutes mute on March - TDS

Analysts at TDS explain that the December FOMC minutes highlighted the debate among Fed officials on the appropriate pace of rate hikes.

Key Quotes

“Some saw inflation as remaining low, while others saw risks that the tax cuts could overheat the economy to and thus boost inflation.”

“On net, a greater number of meeting participants appeared to expect inflation to gradually return to target, thus warranting a December hike and gradual further normalization. However, no signals about March were given. We expect the next hike will be in June rather than March as the market has priced.”

“Treasuries bear flattened as pricing for March and 2018 rate hikes continued to drift higher.”

“FX market implications

The FOMC minutes did very little to provide much of a directional impulse for the USD. With the market pricing more than a 70% chance of a hike in March — an estimate we deem as too optimistic at this juncture — the bar is quite high for the USD to reverse the losses observed in recent sessions in a meaningful way, leaving payrolls this Friday as the next major event risk. Until then, most major crosses should respect notable pivots; 1.1950/80 in EURUSD and 112.00/113.00 range for USDJPY.”