FOMC Minutes sink the US dollar

The Federal Open Market Committee minutes have been released which are so far sending the US dollar DXY index a touch softer.

At the May 3-4 meeting, the Fed hiked rates the expected 50 bp to 1.0% and laid out plans for aggressive Quantitative Tightening to begin in June.

There is room for another 50 bp hike in September that takes the Fed Funds ceiling up to 2.5%, which many consider close to neutral. However, it’s worth noting that odds of a 50 bp move in September have fallen to less than 50% now from fully priced in at the start of May.

FOMC is the Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

FOMC Minutes

ALL PARTICIPANTS AT FEDERAL RESERVE’S MAY POLICY MEETING AGREED HALF-PERCENTAGE-POINT INTEREST RATE HIKE WAS APPROPRIATE; ‘MOST’ JUDGED SUCH HIKES APPROPRIATE AT NEXT COUPLE OF MEETINGS, MINUTES FROM MAY 3-4 MEETING SHOW

ALL FED PARTICIPANTS AGREED U.S. ECONOMY WAS ‘VERY STRONG,’ LABOR MARKET WAS ‘EXTREMELY TIGHT’ AND INFLATION WAS ‘VERY HIGH,’ MINUTES SHOW

PARTICIPANTS AGREED FED SHOULD ‘EXPEDITIOUSLY’ MOVE MONETARY POLICY TOWARD A MORE NEUTRAL STANCE, AND THAT ‘RESTRICTIVE’ STANCE ON POLICY MAY WELL BECOME APPROPRIATE, MINUTES SHOW

FED PARTICIPANTS SAW UKRAINE CONFLICT, CHINA COVID LOCKDOWNS POSING ‘HEIGHTENED RISKS,’ WITH PARTICULAR CHALLENGES TO RESTORING PRICE STABILITY WHILE MAINTAINING STRONG JOB MARKET, MINUTES SHOW

MANY PARTICIPANTS JUDGED FASTER REMOVAL OF POLICY ACCOMMODATION WOULD LEAVE THE FED ‘WELL-POSITIONED’ TO ASSESS LATER THIS YEAR WHAT FURTHER ADJUSTMENTS WERE NEEDED, MINUTES SHOW

FED PARTICIPANTS EMPHASIZED THAT THEY WERE ‘HIGHLY ATTENTIVE’ TO INFLATION RISKS AND AGREED THOSE RISKS WERE SKEWED TO THE UPSIDE, MINUTES SHOW

ALL PARTICIPANTS SUPPORTED PLANS TO REDUCE SIZE OF FED’S BALANCE SHEET; ‘A NUMBER’ SAID AFTER RUNOFF WAS WELL UNDER WAY, IT WOULD BE APPROPRIATE TO CONSIDER SALES OF MORTGAGE-BACKED SECURITIES, MINUTES SHOW

PARTICIPANTS SAID Q1 2022 GDP DECLINE CONTAINED ‘LITTLE SIGNAL ABOUT SUBSEQUENT GROWTH,’ AND THEY EXPECTED REAL GDP WOULD GROW ‘SOLIDLY’ IN Q2 AND BE NEAR OR ABOVE TREND FOR THE WHOLE YEAR