FOMC Minutes Reflect A More Hawkish Fed

Possibly one of the most important sources of economic information to be released this week is the minutes from the September FMOC meeting held by the Federal Reserve, which has been released today.

The minutes confirmed the information conveyed in their press statement which was released immediately upon the conclusion of the meeting as well as news from a press conference with questions and answers by Chairman Jerome Powell. However, the minutes conveyed a much more hawkish Federal Reserve than usual.

The minutes confirmed the information released in their statement stating that the U.S. economy is on a strong growth path. The minutes also confirmed that strong economic growth would warrant future gradual increases in the Fed funds interest rate. This, for the most part, was and is factored into current market sentiment.

However, there were two major concepts that were outside of any information released either in last month statements or verbally by Chairman Jerome Powell during his press conference held immediately after the conclusion of the meeting.

These new pieces of information contained much stronger verbiage or terminology than previously stated and suggested that the Federal Reserve members are moving to a much more hawkish stance regarding their monetary policy.

First, although the Fed has already signaled that further interest rate hikes will be forthcoming, and therefore removing the word “accommodative “to describe the current monetary policy would be appropriate, for the first time they replaced that word with “restrictive” to describe the current monetary policy.

Secondly, they spoke about the real possibility that interest rates would need to be raised above their anticipated “normalization” rate which is believed to be set at approximately 3%.

According to Reuters, “U.S. central bankers discussed raising interest rates soon to counter excessive economic strength but also examined how global trade disputes could batter businesses and households, minutes of the Federal Reserve’s last policy meeting showed on Wednesday.”

Insights revealed through the minutes of last month’s FOMC meeting suggest that the Federal Reserve is taking a much more hawkish stance than perceived prior to this information. The addition of the word “restrictive” to describe the current monetary policy was much more hawkish then merely stating that the Fed was moving interest rates to a period of normalization.

Also, for the first time, the Federal Reserve suggested that it might move interest rates above the perceived target of 3%. These two factors are highly supportive of a stronger dollar and could put additional pressure on precious metals pricing in the weeks ahead.

Wishing you as always, good trading,