Fed Minutes to shed light on rate cut path amid ongoing government shutdown
- The Minutes of the Fed’s September 16-17 policy meeting will be published on Wednesday.
- Details surrounding the discussions on the decision to cut the policy rate by 25 bps will be scrutinized by investors.
- Markets widely expect the Fed to opt for another 25 bps rate cut in October.
The Minutes of the United States (US) Federal Reserve’s (Fed) September 16-17 monetary policy meeting will be published on Wednesday at 18:00 GMT. The US central bank decided to cut the policy rate by 25 basis points (bps) to the range of 4%-4.25% at this meeting, but Fed Governor Stephen Miran preferred to lower the fed funds rate by 50 bps.
Jerome Powell and company opted to reduce policy rate in September
The Federal Open Market Committee (FOMC) decided to cut the interest rate by 25 bps in September, as widely anticipated. In the policy statement, the Fed acknowledged that jobs gains have slowed and reiterated that inflation remained “somewhat elevated.”
The revised Summary of Economic Projections (SEP), published alongside the policy statement, pointed to an additional 50 bps of cuts by the end of the year, followed by 25 bps of cuts in 2026 and 2027.
In the post-meeting press conference, Fed Chair Jerome Powell explained that they don’t feel the need to move quickly on rates, while adding that the risks to the employment mandate had grown. “New data suggest there is meaningful downside risk to the labour market; that's broadly accepted,” Powell said. Regarding the inflation outlook, he noted rising goods prices from tariffs could lift inflation, but added that they expect that to be a one-time rise.
TD Securities analysts think that the FOMC Minutes will highlight the division on the Committee between the hawks and doves. “Most participants likely saw the policy recalibration as necessary. However, we expect some participants saw further easing this year as unlikely given tariff-driven inflation risks. Many participants likely anticipate further easing owing to labor market risks,” they added.
When will FOMC Minutes be released and how could it affect the US Dollar?
The FOMC will release the Minutes of the September 16-17 policy meeting at 18:00 GMT on Wednesday.
According to the CME FedWatch Tool, markets are currently fully pricing in a 25 bps cut in the October meeting and see about an 80% probability of one more 25 bps cut in December. This market positioning suggests that the US Dollar (USD) could weaken against its rivals with immediate reaction, in case the publication confirms that policymakers are willing to opt for rate reductions in the remaining two meetings of the year. On the other hand, the USD could hold its ground if the discussions highlight that some officials could turn reluctant to lower rates if they see an improvement in labor market conditions or signs of persistent inflation.
Nevertheless, the market reaction to the FOMC Minutes could remain short-lived, with investors remaining focused on the developments surrounding the US government shutdown. In case markets turn optimistic about lawmakers restoring funding to the government, the USD could gather strength against its rivals with the immediate reaction. Still, market participants could refrain from taking large positions in anticipation of the release of the postponed macroeconomic data, including Nonfarm Payrolls for September.
Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief outlook for the USD Index:
“The Relative Strength Index (RSI) indicator on the daily chart rises toward 60 and the USD Index trades above the 100-day Simple Moving Average (SMA), which aligns as a pivot level at 98.20. On the upside, 99.40 (Fibonacci 23.6% retracement of the January-July downtrend) aligns as the next resistance level before 100.00 (round level, static level) and 101.35 (200-day SMA).”
“In case the USD Index fails to stabilize above 98.20, technical buyers could be discouraged. In this scenario, 97.70 (20-day SMA) could be seen as an interim support level before 96.20 (end-point of the downtrend) and 95.00 (round level).”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.