January FOMC Minutes Show a Data Dependent Fed

The minutes from the U.S. Federal Reserve January Federal Open Market Committee showed that policy members are concerned about market events and their impact on the American economy. A couple of members pointed out that the Fed’s decision to raise rates in December triggered a sell off in equities and back to a historical valuation.

Disappointing U.S. Economic fundamentals have put the most hawkish members on hold as the rest of the global economy struggles to regain an active pace of growth. In the U.S. Employment continues to be the strongest component of the economy but as the latest NFP showed, even that growth cannot continue forever as the economy reaches full employment (at least in the Non-farm payroll report).

The growth uncertainty evident on the FOMC minutes had the USD losing ground against major pairs as the monetary policy divergence edge evaporates once again. Fed Chair Janet Yellen had managed to revive the central bank chances of hiking rates at all in 2016 after her two testimonies last week, but now the notes from the FOMC meeting have brought to light more roadblocks as members are unsure about domestic and international growth.

The Fed Chair repeated the mantra of “data dependency” that will guide the pace of interest rate hikes, but reading the minutes it seems that there is little confidence that the data will dictate a rate in the next couple of meetings.

There have been some positive developments from the chaos that reigned at the beginning of the year on global markets. China’s stock market and the price of oil have reached stability. China will continue to intervene on behalf of its economy to boost growth, but it remains to be seen how successful the government can foster a slowing economy.

The price of oil is being supported by a tentative agreement by some OPEC and Russia to freeze production levels at January’s record high output. The news seen as a step in the right direction, a freeze of January’s levels means that there won’t be new record output in February. The price of West Texas and Brent has stabilized but remains at the whims of statements and comments from the members of the agreement. Iran for its part has supported the agreement but is not bound by it. Meaning they agree for price stabilization but they do not plan to cut production, specially after coming out of a sanction period.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza