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On Wednesday afternoon the FED released a detailed report on the proceedings of the last interest rate policy decision and the central bank's outlook on the near-term future developments in the U.S. economy.
On the whole, the FED delivered an upbeat presentation of the state of the U.S. economy, and it resonated heavily with the current trends in the labour and industry sectors. The FED recognized the strong performance of the labour market, and it even corrected its anticipation for sustained improvements in the near future. It also acknowledged that the inflation for all products apart from food and energy had remained consistently below the symmetric 2% target level. On the whole, the robust data in unemployment and inflation gave the FED reassurances that the U.S. economy can continue to grow at a steady pace over the next quarter, provided that there is no severe hampering to the trade balance from further escalating tensions in international trade.
“Despite solid economic growth and a strong labor market, inflation pressures remained muted. Members continued to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes for the U.S. economy” [source]
The FED, however, remained conspicuously silent about Donald Trump's renewed attacks against China on trade, despite a few muted remarks scattered across the report, which undermines the entire stance of the central bank on global trade. Conversely, investors were left perplexed because of the lack of clarity in regards to the FED’s anticipations about near-future developments in international trade.
Overall, the FOMC maintained equivocal rhetoric on its expectations for future rate hikes, and from the entire message of the report, it becomes seemingly apparent that the FED has not entirely ruled out the possibility of yet another hike by the end of the year.
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. […] In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”
Just as we anticipated in our' Weekly Expectations' section here, the release of the Minutes report had the most significant impact on the U.S. bonds market, as the yield of the U.S. 10 Years Government Bond fell with 4.13% in the two days following the release of the report. The increased volatility and the short-selling were mostly caused by the FED’s reluctance to address in greater detail the ongoing spat between Trump and Xi Jinping.
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