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FOMC Minutes: Various participants saw taper ‘somewhat earlier’ than anticipated

  
  Analysis

Highlights of the FOMC minutes for the June 15-16 meeting

FOMC Minutes

  • Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of economic data
  • The Committee’s standard of “substantial further progress” was generally seen as not having yet been met, though participants expected progress to continue
  • Many participants felt economy was still ‘far’ from achieving maximum employment goal
  • Some participants saw the incoming data as providing a less clear signal about the underlying economic momentum and judged that the Committee would have information in coming months to make a better assessment of the path of the labor market and inflation
  • A substantial majority of participants judged that the risks to their inflation projections were tilted to the upside
  • Several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases
  • Several participants saw benefits to reducing the pace of these purchases more quickly or earlier than Treasury purchases in light of valuation pressures in housing markets
  • Members agreed indicators of economic activity and employment had strengthened
  • Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained
  • On inflation: Participants attributed the upside surprise to more widespread supply constraints in product and labor markets than they had anticipated and to a larger-than-expected surge in consumer demand as the economy reopened
  • Most participants observed that the largest contributors to the rise in measured inflation were sectors affected by supply bottlenecks or sectors where price levels were rebounding from levels depressed by the pandemic
  • Several participants remarked that they anticipated that supply chain limitations and input shortages would put upward pressure on prices into next year
  • a number of participants noted measures of longer-term inflation expectations had remained in ranges that were broadly consistent with goals
  • Full text of the statement
  • Full text of the minutes
The US dollar softened on the initial headlines. This release isn’t embargoed anymore so it’s a messy release as market participants dig through the text and put it in context.
The main takeaway so far is that there’s no big urgency here to taper or hike rates. That’s helped to boost stocks and weaken the US dollar.
If you read through the headlines, they sound more hawkish but after the dots and Powell’s comments at the meeting, the market began to more aggressively price in a taper and rate hikes and the minutes haven’t offered enough to sustain that, at least initially.

8 reasons to stay bullish targeting 112.20 ahead of 114 – BofA

  
Analysis, Forex

Bank of America on USD/JPY

Bank of America on USD/JPY

Bank of America Global Research outlines 8 reasons for maintaining a bullish bias on USD/JPY into year-end.

“1. JPY’s cyclical bottom has depreciated over time

2. Economic recovery is negative for JPY

3. Commodity bull market

4. Inflation = higher US real yield vs lower JP real yield

5. JPY’s weakness hasn’t been excessive vs other markets

6. Outward FDI could accelerate in 2H21

7. Positioning is not stretched JPY short positioning is not stretched.

8. Chart technical is bearish JPY,” BofA note.

“We estimate USD/JPY’s upside targets at 112.20, the 114s and possibly 115.86. Late-2016/early-2017 highs in the 118s can’t be ruled out,” BofA adds.

For bank trade ideas, check out eFX Plus.

China says that timely use of RRR cuts will support real economy

  
Analysis, Economy

Remarks by China’s Cabinet via state media

China
  • Will not resort to flood-like stimulus
  • Will keep monetary policy stable, increase policy effectiveness

Just be wary that when China issues such statements, they are usually to preempt the market that there might be possible decisions on said matter on the way.

There have been concerns as of late that policy support may be waning in China but officials have rebuffed that narrative in the past week or so, and this adds to that.

IMF’s Georgieva: There is risk of more sustained rise in inflation, which could require sooner policy tightening

  
  Analysis

Remarks by IMF president, Kristalina Georgieva

  • It is essential that US, other countries with accelerating recoveries avoid overreacting to transitory inflation pressures
  • Higher US rates could lead to sharp tightening of global financial conditions, leading to significant capital outflows from emerging economies
  • Monetary policy should remain accommodative in most economies and only tighten where inflationary pressures are high and expectations not firmly anchored
The IMF pretty much weighing on central bank policy although their voice has been relatively insignificant for the most part over the past few years, if not always.
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