United States rates futures hold losses after FOMC minutes

Members noted that recent global and financial market developments might restrain economic activity somewhat as a result of the higher level of the dollar and possible effects of slower economic growth in China and in a number of emerging market and commodity-producing economies. Nevertheless, they still viewed the risks to US economic activity as almost balanced, and they continued to expect that, with appropriate policy accommodation, economic activity would most likely continue to expand at a moderate pace. The market wanted the minutes to suggest that the decision to pass in September was a close call. Remember, inflation is low, and is expected to remain low, relative to the FOMC’s target.

In its statement, the FOMC said again it would like to see further improvement in the labor market and more evidence that inflation is moving towards its 2% target. “Compared with their previous forecasts, more now saw the risks to inflation as tilted to the downside”.

“I think the combination of oil (gains) and the Fed minutes have lifted the indices here”, said Peter Cardillo, chief market economist at Rockwell Global Capital, noting the minutes diminished the likelihood of a rate hike this year. It was therefore decided that “it was prudent to wait for additional information confirming that the economic outlook had not deteriorated”. After the release of the minutes, Fed funds futures continued to price the initial rate increase in March 2016 at the earliest.

Quite a few market place analysts anticipated the Federal Reserve to boost short-term rates of interest for the very first time in practically a decade at its September meeting. Minutes revealed concerns among members that a premature tightening might erode the credibility of the Fed’s inflation objective. According to Fed Fund futures, the market is still reticent to believe the assessment with the probability of a hike in October at 8.0 percent while a December move is considered a 39.3 percent probability. The Fed discussed how the markets were perceiving their rate hike timing.

The Fed has struggled to fulfill the inflation side of its dual mandate, with price growth still well below its 2pc target. “The Committee also maintained its policy of reinvesting rincipal payments from its agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction”.