December FOMC minutes preview: Affirming neutral

• December vote to maintain fed funds at the 1.75% upper target was unanimous.
• Chairman Powell comment on inflation gave policy a dovish cast.
• Next economic projection not due until March FOMC.

The Federal Reserve will release edited minutes of the December 10-11 FOMC meeting on Friday January 3^rd at 19:00 GMT, 14:00 EST.

FOMC Minutes

The Fed rate insurance policy taken out in three 0.25% rate cuts from July to October bringing the target range to 1.5% to 1.75% was completed at the fall meeting.  The vote for the current neutral approach was unanimous at the December FOMC, the first agreement of the governors since the June 2019 meeting. Esther George and of Kansas City and Eric Rosengren of Boston had voted against each of the three rate cuts preferring a stable fed funds.

Fed funds 

FXStreet

Chairman Powell’s comment in his news conference after the December meeting that it would require a sustained increase in inflation for the Fed to consider raising the interest rate put a notably dovish imprint on Fed policy. 

The FOMC statement stressed the impartial economic judgement of the board.   “The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.” 

It also noted, as is its wont, the data dependency of its economic analysis.  “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

The studied neutrality of these view is something that the governors will likely use the minutes to reinforce.

US dollar

Currency markets put the dollar on the defensive after Mr. Powell’s inflation remark seemed to indicate a higher standard for a rate increase than implied in the FOMC statement.   

The risks to the US economy that the governors saw in the summer from the US-China trade dispute, the global slowdown in growth and Brexit have receded sufficiently to bring the committee back to non-intervention.

The minutes are not an ideal venue for asserting policy but there may be an effort to counter the impact of Mr. Powell’s inflation comment. If so the dollar will benefit.