FOMC minutes drop stocks, rise US dollar


FOMC minutes are extremely hawkish, pushing stocks lower and USD / JPY higher

FOMC members have suggested that it may be appropriate to start shrinking the size of the Federal Reserve’s balance sheet relatively soon after raising rates.

If you thought the FOMC was hawkish, wait until you see the minutes! Posted earlier, the minutes of the December FOMC meeting showed members were suggesting that it might be appropriate to start reducing the size of the federal reserve balance sheet relatively soon after starting to raise the federal funds rate. !

Recall that during the meeting, FOMC members decided to double the pace of bond purchase cuts from $ 15 billion per month to $ 30 billion per month. This would end the Fed’s quantitative easing program in March. Additionally, members’ rate hike forecasts averaged 3 rate hikes in 2022 and 3 rate hikes in 2023.

However, neither the press release nor the press conference made any mention of the Fed’s balance sheet disposal schedule. sheet. The minutes showed that the Fed’s balance sheet could contract faster than that of the last cycle!

In addition, members believed the conditions for a rate hike could be met fairly quickly if the recent pace of labor market improvements continued. Although President Powell has said the criteria have been met for maximum jobs to cut bond buybacks in August, the Committee now suggests he is close to meeting the employment criteria to raise rates ! Therefore, NFP printing will be closely watched by traders to see if the printing is better than the +400,000 expected jobs.

According to the CME Fedwatch Tool, the odds of a rate hike at the March meeting jumped to 68.5% following the release of the Minutes!

Source: CME

Stocks were immediately hit by the more hawkish-than-expected minutes from the FOMC. the Dow Jones Industrial Average fell 300 points to close the gap from Monday’s close at 36,582.26.

Dow Jones Index Chart (DJIA) 15 minutes

dow jones purse 05012022
Source: Tradingview, Stone X

Yields on U.S. Treasuries also rose after the FOMC minutes were released, hitting highs not seen since April 2021, above 1.70%.

Daily US Treasury Bond Chart (10yr)

10-year treasure bonds 05012022
Source: Tradingview, Stone X

As a result, the pair USD / JPY resumed losses on the day and tried to test yesterday’s high of 116.35, falling a little short so far. If the hawks continue to buzz, the 161.8% Fibonacci extension from November 24, 2021 highs to November 30, 2021 lows near 117.34 could be ahead!

Daily USD / JPY Chart

forex usd / jpy 05012022
Source: Tradingview, Stone X

FOMC minutes are generally boring and boring. However, not this month! With the mention of the timing of the Fed’s balance sheet reduction and the possibility of raising rates “relatively soon”, the hawks have come out. Watch for more comments from Fed officials ahead of the January 26 meeting!

By Joe Perry, Forex.com » Official site

forex.com stock market

Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may arise from the fact that someone relies on such information.

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