FOMC Minutes Just enough ambiguity to keep us guessing

Despite the Federal Reserve’s big shift toward clearer public communication in the last few years, traders still struggle to get a clear read on what the central bank is likely to do in the future. In a recent insightful blog post on the Fed’s communication policy, former Federal Reserve Chairman Ben Bernanke sought to settle the question on what traders should really focus on to help handicap Fed policy:

“What then about the market participant who just wants to know the policy bottom line? Who should he or she listen to? There are two conduits for the FOMC’s collective decisions: its post-meeting statement and the chair’s commentary on behalf of the …[f]or those with limited time for Fed-watching, those official channels provide the best information about what the Committee is thinking and how it is likely to act.” – Ben Bernanke, November 6, 2015

In other words, don’t get distracted by the cacophony of individual Fed policymaker speeches; instead, focus on the collective group statements, and by extension, the minutes of the meetings where those statements are created.

That brings us to the just-released FOMC minutes. On balance, the minutes reaffirmed the message behind the changes to the October monetary policy statement: the US central bank is strongly considering a December rate hike, dependent of course on the incoming economic data. Lest we forget, it’s worth noting that the monetary policy meeting was conducted before the release of the blowout US October jobs report, so even with some disappointing second-tier releases over the last two weeks, a December rate hike remains the Fed’s base case.

Other key headlines follow:

• MOST FED OFFICIALS SAW DIMINISHED RISKS FROM ABROAD
• FOMC MEMBERS WANTED TO CONVEY DECEMBER LIFTOFF MAY BE APPROPRIATE
• SOME FED OFFICIALS: UNLIKELY LIFTOFF CONDITIONS MET BY DEC.
• COUPLE ON FOMC CONCERNED WORDING CHANGE TOO STRONG A DECEMBER SIGNAL

As we all know, the unfortunate reality of working on a committee is that a complete consensus will never be reached, and the FOMC is no exception as the last two dovish bullets illustrate. Reading between lines and taking recent policymaker comments into account (with all due respect to Dr. Bernanke, of course), it seems likely that Chairwoman Yellen will have enough votes for “liftoff” in December, barring a dramatic economic shock in the next few weeks.

Market Reaction

Traders who were desperate for a clear signal from the Fed remain adrift as the mixed market reaction shows. The dollar index is ticking mildly higher, though it remains well below the key 100.00 level we mentioned earlier today. Meanwhile, US equities have built on today’s gains, gold and oil are essentially flat, and the benchmark 10-year treasury bond yield has held steady at 2.27%.