FOMC Minutes Meet Expectations So Traders Stay Focused On Debt Ceiling

Key Insights

• FOMC Minutes contained no surprises. 
• The policy outlook has become less certain as Fed needs more time to see the impact of the previous moves. 
• Markets have shown little reaction to FOMC Minutes as traders remained focused on the debt ceiling drama. 

On May 24, Fed released the minutes of the FOMC meeting that was held on May 2-3, 2023. According to FOMC Minutes, “[…] participants expected that a period of below-trend growth in real GDP and some softening in labor market conditions would be needed to bring aggregate supply and aggregate demand into better balance and reduce inflationary pressures over time.”

Talking about the recent crisis in the regional banking sector, the Minutes showed that “[…] conditions in the banking sector had broadly improved since early March, with the initial deposit outflows experienced by some regional and smaller banks moderating substantially over subsequent weeks.”

The Minutes indicated that Fed remained worried about inflation, which is not surprising as all Fed speakers have highlighted the importance of the fight against inflation. Interestingly, some participants of the meeting were worried that U.S. will not raise the debt ceiling in time.

The Fed policy outlook has become more uncertain: “[…] the extent to which additional increases in the target range may be appropriate had become less certain.”

All in all, the Minutes have mostly met expectations, so traders will likely remain focused on the debt ceiling drama.

 U.S. Dollar Index settled near the 103.80 level after the release of FOMC Minutes. Treasury yields have pulled back a bit, but it remains to be seen whether this pullback is sustainable.

Gold is currently trying to climb back above the $1965 level as the U.S. dollar is moving away from session highs.

SP500 remains stuck near the support level at 4115 as traders focus on debt ceiling negotiations. FOMC Minutes had no material impact on SP500 dynamics.

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