Key Insights
- FOMC Minutes showed that some Fed members were willing to raise rates by 50 bps at the previous meeting.
- Interestingly, many of the participants were ready to slow the pace of rate hikes.
- Traders view FOMC Minutes as hawkish, and the U.S. dollar moved to session highs.
FOMC Minutes Indicate Fed Remains Focused On Raising Rates To Achieve A Restrictive Stance
On February 22, the Fed released FOMC Minutes, which allowed traders to evaluate Fed’s thinking at the previous meeting.
According to FOMC Minutes, “Many of these participants observed that a further slowing in the pace of rate increases would better allow them to assess the economy’s progress towards the Committee’s goals of maximum employment and price stability […]”
However, “A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting […] a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance.”
Apparently, one of these participants was St. Louis Federal Reserve President James Bullard, who have recently said that it was necessary to be sharp now to get inflation under control in 2023.
It remains to be seen whether the markets will see the Minutes as too hawkish. It was obvious that some Fed members were willing to raise rates at a fast pace to put more pressure on inflation. The Minutes indicate that only “a few” participants wanted to see a larger increase, while “many” wanted to see “a further slowing in the pace of rate increases.”
U.S. Dollar Gains Ground After FOMC Minutes
U.S. Dollar Index tested session highs after the release of FOMC Minutes as traders focused on the hawkish position of some Fed members. Treasury yields have moved higher, but this move was not strong.
Gold pulled back below the $1830 level as traders focused on stronger dollar and hawkish Fed members. S&P 500 moved back towards the 4000 level.
At this point, it looks that traders have interpreted FOMC Minutes as hawkish. Traders should keep a close eye on the developments in Treasury markets which did not show strong reaction. If Treasury yields start to move higher, riskier assets may find themselves under significant pressure.
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