Views of the major banks on the FOMC minutes
Salvador Dali "The Persistence of Memory" FOMC minutes revealed the persistence of the US interest rate
Yesterday we finally got the FOMC minutes and found out what went wrong in September, why Fed’s senior officials decided to keep the present interest rate on hold. The minutes added fuel to expectations for near-term hike. But we shouldn’t be too excited, since the release has also revealed a great share of disagreement among the FOMC members. Several officials see a hike as appropriate to present situation, while others are rather skeptical of the US economy revival. The later ones preferred to wait for additional evidences of improvement. So, will “doves” change their stance in the upcoming meeting? It’s still unclear, although we must admit that hawkish sentiments persist. Let’s see what major banks think about yesterday’s FOMC minutes.
According to Mattias Bruer and Royce Mendes, the rate should rise relatively soon; and this was confirmed by several FOMC members, although there is a healthy amount of disagreement about the extent of remaining slack in the US economy.
Danske Bank noted that we are dealing with a very divided FOMC and that “hawks” and “doves” will fight to the death. Hawks believe that the US economy can overheat if employment rate increases over the past six years. In addition, the low rates create financial instability. Doves think that it’s too soon to raise hike as core inflation still runs below 2% and there are no signs of inflation looming on the horizon. Danske decided to stick its non-consensus view that the Fed will stay on hold once again for the rest of the year. The combination of weak GDP data over the last quarters still weights on the labor market and wage growth. The low inflation expectations and core inflation do not exceed the Fed’s target, therefore, the Fed may afford itself not to change its interest rate. The bank believes that the Presidential election won’t allow FOMC members to raise rates. Danske suggests to wait until Friday when we get retail sales data and Fed Chair Yellen’s speech. If retail sales are weak and if Yellen sounds dovish at her press conference, the rate hike will unlikely be a reality.
Barclays admits that the FOMC revealed a discord within committee on various issues. These divisions could not dissipate at the next meetings which means that a rate hike in December is not a closed issue. FOMC members saw that the statistical data changed little since their September meeting, although there were considerable labor market developments, consumer sentiment has risen, labor market condition has improved appreciably this year. But whether it will be enough to kick the committee into action is still not clear.