USD: Trading The FOMC Minutes – Views From Major Banks

The following are brief expectations for the FOMC minutes from the May-3rd meeting as compiled from the related research reports of 10 major banks. Overall, they’re looking for clues on 1- inflation outlook, 2- tightening path, and 3- balance sheet reduction.

TD Research: We look for the minutes to reinforce a hawkish message on slack and growth.  The minutes could also reveal additional plans on the intended balance sheet reduction.  That said, the minutes tend to be a staid affair with much of the news backward looking.  The key for today’s reaction is whether the minutes offer any signals on the path of future tightening or the sequence around balance sheet reduction.  We don’t expect the minutes to offer much of these front.

Credit Agricole CIB Research: We see limited scope for dovish surprises as when it comes to today’s FOMC meeting minutes. In fact, today’s minutes should highlight that the committee saw the door for a June hike as open and we do expect the Fed to hike next month…Well supported central bank rate expectations are likely to put a floor below the USD and make current levels an attractive buy, for instance  against the EUR and the JPY.  

SocGen Research: The focus of those reading the Minutes will be on the Fed’s balance sheet plans, but beyond that, what matter is where rates are headed over the medium term, rather than where they are going in the next few months.

BTMU Research: The focus on the release of the FOMC minutes of the meeting on 3rd May. The statement of that meeting essentially played down the evidence of slowdown which hence cemented expectations of a rate hike in June. However, there is a risk that the minutes tonight might reveal some greater detail of debate over that interpretation. We still fully expect the FOMC to hike on 14th June.

Morgan Stanley Research: The market prices an 81% probability of a Fed rate hike in June, supported further by the Fed’s Harker saying that a June hike “is a distinct possibility”. The FOMC minutes will be watched to provide clues on the path for rates and how the committee views that tightening measure along with balance sheet reduction.

UniCredit Research: The minutes of the 3 May FOMC meeting should highlight that, while the committee discussed the weaker 1Q GDP and employment numbers, it concluded that the underlying momentum in the economy remained solid. It will likely also be interesting to follow the discussion on the details of when and how to start shrinking the Fed’s large balance sheet.

RBC Research: The focus will be on the pace of the tightening path and discussions about balance sheet reduction. RBC thinks the next wave of information about the balance sheet unwind is much more likely to come at the June meeting, but there is an outside chance of some additional news about the approach that will be used to shrink the sheet. The remaining issues are timing, tapering, and the pace of runoff. Any further elaborating on these could be market-moving.

NAB Research: We expect the FOMC Meeting Minutes to reiterate the consensus view within the Committee for two more hikes this year and expect the market to be sensitive to any commentary on the inflation outlook. A June hike still looks like the base case scenario, but if there are any signs of doubts over the expected upward path on inflation this view may be challenged.

Barclays Research: We expects the minutes to show that most FOMC members viewed the slowdown in Q1 activity as transitory, and to downplay soft incoming data against continued improvement in labor marker data. In addition, they should show that committee members viewed the weak February inflation data as driven by one-off factors. Regarding the outlook for policy, the minutes will likely conclude that a further normalization of policy remains appropriate. 

SEB Research: We will look in the minutes for indications about how certain Fed was that the Q1 weakness was temporary and any discussions of fiscal policy. “Arguably, the most interesting aspect of the May minutes would be details about balance sheet normalization. We will be looking for indications of expected start time, the appropriate future size if the balance sheet, and the pace of reduction.

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