The meeting minutes from the December 11th monetary policy meeting will be released today by the Federal Reserve bank. The Federal Reserve Bank kept interest rates steady in December at 1.50% – 1.75%.
Investors will be looking to today’s release for any clues on the future course of monetary policy. In a holiday-shortened week, besides the ISM manufacturing report, this will be the biggest headline.
The impact of today’s report is unlikely to play a big role in the markets unless the information reveals information not previously known.
The Fed has been responsive to the current state of the US economy. Despite concerns of a possible recession, the economy will no doubt see a slower pace of growth. But still, this remains within the acceptable limits.
In some aspects, the Fed’s decision to cut rates is seen as a positive for the markets. Amid faltering growth and trade tensions, lower rates remain consistent with the current economic situation.
Recap of December FOMC Meeting
At the December meeting, the decision to leave interest rates unchanged was widely expected. This was after the Fed lowered rates three times during the year. While initially, the Fed started out with a one and done rate cut, its views changed.
As global trade tensions simmered, the impact was felt across the global economy. The manufacturing sector, in particular, took a big hit, with the ISM’s index falling below the 50-level, indicating contraction.
Meanwhile, despite President Trump’s calls for bigger rate cuts, the Fed asserted its independence by staying the course.
At the December meeting, the Fed also published its quarterly economic outlook. As per the report, policymakers see interest rates staying steady this year. However, given that the Fed remains data-dependent, it will be quick to react to any overheating in the economy.
The central bank’s key worry is the lack of price pressures. But all things considered, the current landscape remains supportive of growth. Sluggish price pressures mean that consumers have more to spend.
With the labor market in the United States staying resilient, it is likely that price pressures will rise eventually. Part of this is also due to the recent rise in oil prices. This comes as OPEC members voted for deeper production cuts.
Although energy prices remain volatile, they play a bigger role in the face of inflation. Higher oil prices could give consumer prices a boost.
At the moment, the big question on everyone’s mind is the direction of interest rates. A lot of this will depend on how the economy will fare. For one, investors will get to see if the initial trade deal with China will help in any way.
Over the holiday period, China announced a series of measures by lowering tariffs not just for US goods, but for also most of its trading partners.
This easing of trade stance could be encouraging, giving global growth a bit of a boost.
The most critical juncture will, of course, be the March Fed meeting. There is a slight chance that the Fed could cut rates once again. But having said that, it will depend on economic performance during the first quarter of the year.
Overall, today’s FOMC meeting is unlikely to reveal any new information. There are still some dissenters in the FOMC who are in favor of rate hikes. But they are unlikely to influence the rest of the voters.