Here’s What To Expect From FOMC Minutes

Key Insights

• FOMC Minutes will show whether the Fed has any worries about the impact of higher interest rates on the economy. 
• The market expects that the Fed will raise the rate to 425 – 450 bps by the end of this year. 
• Any material changes in the interest rate expectations will lead to big moves in the forex market.

FOMC Minutes May Have A Significant Impact On Markets

Today, traders will focus on the release of FOMC Minutes, which usually have a material impact on market dynamics.

FOMC Minutes provide an in-depth summary of the Fed discussion at the latest Fed meeting. Traders pay close attention to the details of the Fed discussion to find clues about future policy.

This time, traders will try to evaluate whether the Fed leaves any room for a more dovish scenario. “Dovish indicators” may include concerns about putting too much pressure on the economy.

While the Fed has previously stated that the job market was too tight and the rise in the Unemployment Rate was desirable, some Fed members may be concerned that the central bank would push the economy into a severe recession. Judging by the recent dynamics of the S&P 500, the market is seriously concerned about such a scenario.

“Hawkish indicators” will include a strong focus on fighting inflation at all costs. Perhaps, some analysts would even count the number of times the word “inflation” appears in FOMC Minutes.

Potential Scenarios

The FedWatch Tool indicates that there is a 83.3% probability of a 75 bps rate hike at the next Fed meeting on November 2. Traders also expect that the Fed will follow up with a 50 bps hike on December 14, pushing the target rate to 425 – 450 bps. These hawkish expectations provided significant support to the U.S. Dollar Index, which has settled near multi-decade highs.

If FOMC Minutes show that the Fed is not concerned about the potential recession, the U.S. dollar would get more support. This scenario would be bearish for EUR/USD and GBP/USD. USD/JPY, which is already testing multi-decade highs, may move towards the 150 level if the Fed is hawkish enough.

If the market sees FOMC Minutes as dovish, the probability of a 75 bpd rate hike will decline, which will be bearish for the U.S. dollar and bullish for stocks. The U.S. dollar gained a lot of ground against a broad basket of currencies this year, so dovish remarks in the FOMC Minutes may lead to a sell-off.

For a look at all of today’s economic events, check out our economic calendar.