The following are the expectations for today's FOMC minutes from the April meeting as provided by the economists at 15 major banks along with some thoughts on the USD into the event as provided by the FX strategists at these banks.
Golman Sachs: The April FOMC statement was roughly in line with expectations, with no significant change to the policy language. In the minutes, we will be watching for any discussion of: 1) the timing of liftoff, (2) what would lead the Committee to be "reasonably confident" that inflation will move back to its 2% target over the medium term, (3) the weakness in exports and US growth, (4) labor market slack and the lowered estimate of long-run unemployment in the SEP, and (5) the mechanics of liftoff.
Deutsche Bank: DB expects the following: 1- Expect the minutes to highlight the Q1 weakness but underscore policymakers’ view that the most recent soft patch is temporary, due to inclement weather, the West Coast port slowdown and the collapse in energy-related capital spending. 2- They may also mention the potential for seasonal distortion to Q1 output growth, which the San Francisco Fed recently estimated would have been closer to 1.8% upon further seasonal adjustments. Given the fact that jobless claims have continued to trend downward and are now near a 15-year low, we suspect that most Fed officials remain cautiously optimistic. 3- In turn, the minutes are likely to reinforce the Fed’s official line that all meetings are “in play”, although we doubt this is the case in reality. We find it hard to believe that the Fed’s first hike in interest rates in what will be nine years would be announced at a nonpress conference gathering (July 31 & October 28). 4- Moreover, we doubt the Fed can hike in December because financial markets are notoriously illiquid. The ongoing structural shift in bank balance sheets has only further fostered illiquidity concerns. For this reason, September 17 is the most likely meeting for a rate hike this year—June is out of play. In any event, the key message from the April minutes should be that a rate hike is still very possible this year.
BNP Paribas: The news flow may be more challenging for the USD today, as our economists expect a dovish tilt to the FOMC minutes to be released in the New York afternoon. While FOMC focus on mixed messages from incoming data at the April meeting should mostly be viewed as simply confirming that a June rate hike is unlikely, markets may extrapolate and further reduce pricing for rate hikes later in the year.
Credit Agricole: Today’s focus is the FOMC minutes. CACIB’s economists expect the minutes to focus on the soft Q1 growth figures and recent labour market slowdown. That said, we expect the minutes to underscore the Fed’s view that these risks should ebb in the coming months, highlighting the temporary of the impact to growth. Discussions about the timing of the Fed exit and the criteria needed for the Fed to feel “reasonably confident” about the inflation outlook could help the USD rally gather steam as markets circle back around a September lift-off.
Nomura: The statement had been in line with our economists’ expectations, and the FOMC seemed confident about the economic growth trajectory. The minutes will be interesting in gaining a sense of the underlying confidence in the growth and to see if there were any concerns about the poor employment report from March.
SocGen: Today's US FOMC Minutes are seen by many as the most important data of the day, though the danger is that they don’t tell us much beyond ‘the Fed is patient’. Still any smidgeon of hawkishness would be enough to get a New York close above here and if that happens, the market is no longer as long of dollars at would like to be.
NAB: The focus tonight is likely to be on the FOMC minutes, where the discussion regarding the slowing data is to be balanced against the desire to begin raising interest rates later this year. With the back-up in bond yields, even if it has not been related to data so far but position unwinding, an emphasis on normalising policy, rather than the weakness of the data, is likely to have a greater effect on yields and FX in the present market. To balance against this, the dove Fed speaker Evans speaks on the economy and monetary policy.
BofA Merrill: The April FOMC minutes are likely to show that the Committee was still prepared to hike within the next few meetings, despite being somewhat more concerned about the near-term data. While this is now old news, the market may nonetheless read the minutes as having a modestly hawkish bent as a result. We would suggest fading this interpretation: the data have softened further since the April meeting, and the minutes have tended to paint a more hawkish picture than actual policy over the past several years. Only a few members are likely to explicitly rule out a June hike in the April minutes, but data dependence should lead the Committee to be less certain of a near-term rate hike than at the March meeting. In light of recent Fed rhetoric, we do expect the minutes to reveal that the threshold for the first rate hike is relatively low. The key thing to watch for in the minutes is how Fed officials characterize the conditions that would warrant liftoff. In particular, we would look for any signs that Fed officials may have revised down their outlook for growth and/or inflation beyond the near-term. Such a revision would be notable, and a potential signal that the FOMC may postpone the first rate hike. However, the April statement suggests that Fed officials chalked up much of the weakness in activity to temporary factors, such as weather and the West Coast port shutdown. In addition, the Committee overall appears to believe that the impacts from the strong US dollar and oil price drop will be similarly short-lived. Thus, we see any signal of a potential delay to the hiking cycle as a risk rather than as likely. Beyond debating the liftoff date, Fed officials are likely to have discussed how to communicate the pace of rate hikes. This should remain an active debate, with support for giving as much clarity as possible without pre-committing to a policy path and remaining data dependent. Discussion of how to operationalize this message, and other potential changes to the communication strategy, would be notable. This may include ways to communicate policy changes at non-press conference meetings, as a matter of prudent planning. In addition, we expect support for additional testing of the various normalization tools the Fed has developed.
Barclays: It'll be important to see how the FOMC interprets recent soft activity, considering that San Francisco Federal Reserve Bank President Williams and the Federal Reserve Board, in line with our US economists, have expressed concerns that the weak Q1 GDP may be a misleading signal about underlying momentum due to residual seasonality
ING: The domestic focus today will be on the release of the April FOMC meeting minutes. We expect the market reaction to be mixed; policymakers are likely to remain optimistic by attributing the 1Q weakness to transitory factors, yet may well overlay this stance with subtle hints of caution. Likewise, while the majority may well be leaning towards a potential Fed lift-off at some point this year, any discussion over the exact timing will be outdated in light of the disappointing run of data outcomes since the April meeting. Given that the dollar remains bid going into today's release, the risks are slightly more balanced than we anticipated, but we still see scope for modest upside as the diverging monetary policy theme reasserts itself as the key driver for USD crosses.
RBS: The Fed minutes should bring considerable interest. The minutes, along with the statement and recent Fed-speak, may prove to be frustratingly vague on the committeee’s view of the timing of the first rate hike, noting that it simply depends on the data. The statement downgraded language on the labour market but added that the weakness seen in the first quarter was likely transitory. The FOMC continues to expect that economic growth will rebound in the second quarter but that the confidence in that view may have retreated somewhat. As that stance is consistent with recent comments from Fed members, a sharp market reaction may be unlikely. While the commentary may lean dovish, perhaps reflecting lessened confidence in the spring rebound, the fact that the Fed still sees itself on pace to hike in 2015 may prove to be a positive for the USD.
UBS: The latest FOMC meeting minutes are likely to be interesting, but UBS have no reason to expect this particular set of minutes to alter the near-term policy outlook significantly.
CIBC: The minutes from the Fed’s last meeting are released today and they should give us a clearer picture as to how temporary the members saw Q1’s growth disappointment. Chair Yellen is ending the week with a speech on Friday, in which she’ll give us her own views on the economic outlook.
Danske: Today’s main event is the publication of minutes from the FOMC-meeting on 28-29 April. In the statement from the meeting the Fed said that the slowdown in Q1 was partly transitory, so it will be interesting to see to what degree the FOMC-members have confidence in a rebound in growth in Q2. With the timing of the first rate hike largely data dependent, there is unlikely to be any clear indication on the timing of the first rate hike in the minutes.
lloyds: Today's minutes of the FOMC April meeting will also be scrutinised for variations in individual outlooks rather than providing any significant guidance on the likely timing of a rise in the policy rate which markets expect to take place before the end of the year. The minutes of the March meeting indicated that some Committee members took the view that such a move could be premature given that headline inflation remained well below the 2% objective, energy prices continued to be soft and the dollar was rising. However, the subsequent pickup in oil prices towards $65 per barrel and 6% fall in the tradeweighted USD exchange rate point to easing inflationary headwinds.
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