4 Takeaways from the Latest FOMC Minutes

And the minutes are out! Find out what FOMC officials discussed during their latest monetary policy meeting and what this might mean for the dollar’s forex price action moving forward.

1. Fed unlikely to hike before April

fed patience forex

Om… Patience… Patience…

Nope, no rate hike for Q1! The FOMC minutes confirmed that Fed officials are in no rush to tighten, which isn’t much of a surprise since they’ve already mentioned that they’re being “patient” with potential monetary policy adjustments.

In particular, the minutes showed that “the committee was unlikely to begin the normalization process for at least the next couple of meetings” so forex market watchers might have to wait until Q2 or later for a Fed rate hike. Of course this still largely depends on how economic data unfolds until then and whether or not the improvements are sustained.

2. Inflation is still a huge concern

What’s keeping the Fed cautious for now is the fact that inflationary pressures are weakening once more, thanks to falling oil prices. According to the minutes, FOMC members would like to see core inflation move closer to their 2% target before discussing policy changes.

For now, the core CPI stands at 1.4% while the Fed’s preferred gauge of inflation, the personal consumption expenditures price index, is up 1.2% year-over-year in November. Bear in mind that U.S. CPI has been running below target for the past 31 months and may continue to do so in the foreseeable future.

3. Confidence in domestic economy

Grim inflation outlook aside, the FOMC minutes still sounded relatively upbeat with its economic assessment and outlook, with policymakers expressing confidence in domestic performance. Even as other major economies are facing challenges, Fed head Yellen assured that external threats are being balanced by positive developments locally.

For one, consumer spending has seen robust growth, as the slump in oil prices allowed Americans to spend more of their disposable income on other purchases. Consistent hiring gains have also boosted consumer confidence, eventually translating to increased demand and business production.

4. Tests for reverse repo program to carry on

While the FOMC minutes suggest that the Fed is moving closer to tightening policy, it appears that they are considering alternatives other than actual rate hikes for now. Recall that the Fed is conducting tests on its plans to implement an overnight reverse repurchase facility which is designed to set a floor for short-term interest rates.

For now, the Fed’s economic staff is still crunching the numbers and fine-tuning the process to figure out how this unconventional tool can be used to achieve more control of short-term and long-term rates. This should also help the Fed better manage lending activity should they eventually decide to hike the benchmark rate later on.

What do you think these FOMC minutes mean for the dollar’s longer-term price action? Will we see another Year of the Dollar this 2015? Share your thoughts in our comments section or cast your votes in our poll below!