FOMC Minutes A Prescient Fed For Once

“There are decades where nothing happens; and there are weeks where decades happen.”

– Vladamir Lenin

The Federal Reserve’s June monetary policy meeting was only three weeks ago, but in today’s fast-paced markets, it truly feels like it was at least a decade ago. If you recall, the US central bank shifted its interest rate expectations (the so-called “dot chart”) lower, but the median Fed official still expected two interest rate increases this year, likely in September and December.

Since that meeting though, a couple of major tremors have hit the global financial system, namely the possible final ultimatum in Greece and China’s precipitous stock market collapse, to say nothing of today’s bizarre technical issues with the NYSE stock exchange. Therefore, traders were primed to take today’s minutes with a big grain of salt, as some of the members’ comments from three weeks ago may already be dated and stale. Lenin might say that they’re a decade old already.

That said, insight from the world’s most important central bank is still worth tuning into, and on that note, here are some of the major headlines from the hot-off-the-presses FOMC minutes:

• FOMC SAW CONDITIONS STILL APPROACHING THOSE WARRANTING LIFTOFF
• MANY FED OFFICIALS EXPRESSED CONCERN ABOUT GREECE AT JUNE FOMC
• SEVERAL OFFICIALS VOICED UNCERTAINTY ABOUT CHINESE GROWTH PACE
• MANY OFFICIALS WANTED MORE SIGNS OF STRONGER GROWTH FOR LIFTOFF
• A NUMBER OF FED OFFICIALS WARNED AGAINST PREMATURE RATE RISE
• ONE MEMBER READY TO RAISE RATES IN JUNE BUT WILLING TO WAIT

At first glance, these headlines highlight the same, ambiguous message presented three weeks ago. Most officials want to start normalizing interest rates, but they are wary of the risk of raising interest rates too quickly and would prefer to see more convincing evidence that the economic recovery is accelerating. In at least one regard, the central bank comes out smelling like roses: “many” and “several” officials respectively cited worries about Greece and China respectively as factors favoring holding off before raising interest rates. As we noted above, the financial conditions in these two countries have since deteriorated and may play an increasingly large role in US monetary policy moving forward.

Market Reaction

Markets mostly took the FOMC minutes in stride, with the US dollar edging a tick lower. EURUSD has rallied about 20 pips to 1.1075 as we go to press, with USDJPY initially shedding 20 pips to 120.55. The already-battered US equity markets gave up a few points, with the DJIA now trading down 213 points and the S&P 500 off 28, while the benchmark 10-year bond yield is rallying today, with yields falling a few basis points to 2.20%.