Inflation expectations retreat ahead of FOMC Minutes

Wednesday’s FOMC Minutes will be crucial for near-term directions amid uncertainty over the policymakers’ bias after the latest inflation readings and the size of the next rate hike. To sum up; Wednesday is all about the July FOMC minutes and while the minutes are some weeks old, no one is expecting to learn anything new at all, although so many analysts will be scanning and skimming through the minutes to find something that no one else saw.

As for gold; FOMC minutes will be closely scrutinized by investors, and given how gold remains sensitive and quite reactive to anything relating to interest rates and inflation, the precious metal could turn volatile. As for cryptos; Bitcoin rallied last week after a weaker-than-expected US CPI softened inflation and growth concerns. BTC price closed the week with a 4.92% gain, reaching above $24,100 as rate traders lowered their expectations for the Federal Open Market Committee’s September rate decision. Notably, market is pricing through Fed futures and swaps projects a 50 basis-point rate hike as the most potential outcome. The EUR/USD price is expected to react to the FOMC minutes. These minutes will provide more clarity about what the Fed will do in the coming months. The bank decided to hike interest rates by 0,75% in the past meeting.

FOMC minutes and US retail sales data are due this week. Foreshadowing of the Fed rate hike plans could force Bitcoin to face additional tailwinds, mainly due to its consistent positive correlation with risky assets like stocks.

But more rate hikes could result in a Bitcoin price correction. It is possible due to Fed Chairman Jerome Powell’s statement that “another unusually large increase could be appropriate” in their September meeting.

Examples of what is really in focus include any plan to reduce the Federal balance sheet. The minutes are expected to reveal that the FOMC is focused on inflation and has every intention of staying on the same course of action.

Stances and statements by Fed’s Chucky Evans, Neely Kashkari and Mary Daly last week even Dallas would find further clarifications from within the Minutes as well. The FED needs to stay the on the same hawkish course. None of the said Fed’s officials have a vote as they are not FOMC members, but their statements and comments can be a source of information when there are so many questions.

US inflation expectations, as per the 10-year breakeven inflation rate according to St. Louis Federal Reserve data, begin the week on a negative note while declining to 2.44% at the latest. In doing so, the inflation precursor snapped two-day inaction by adding to the market’s cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting minutes.

The inflation expectations join the league of recently downbeat Consumer Price Index (CPI) and the Producers Price Index (PPI) from the US to challenge the hawkish Fed bets. However, officials from the US Federal Reserve (Fed) defend the US central bank’s aggressive rate hikes while wanting to wait for sustained easy inflation numbers for any change in the outlook.

As a result, the market sentiment remains divided even as the Wall Street benchmarks post mild gains and the US 10-year Treasury yields ease.