Today is the
day on which the US Federal Open Market Committee (FOMC), the Bank of England
and the European Central Bank all release minutes from their Monetary Policy
meetings. In each case the focus of the Forex market will be on what these
minutes say that will provide some clues about when core interest rates are
likely to be raised, especially in the US and the UK. Nobody expects the ECB to
even think about raising rates anytime soon, but there could be indications
about its committee members’ attitudes to Quantitative Easing (QE).
The chart
above, which was contained in the Bank of England’s quarterly inflation report,
on August 6th, and which we have obtained courtesy of The Telegraph
newspaper, indicates expectations of the market in relation to the timing of
interest rate rises in all three important jurisdictions.
Over in the
US, the big consideration is the fact that a new Non-Farm Payrolls report (last
Friday) now intervenes between the holding of the monetary policy meeting and
the release of the minutes. This jobs report was the worst to come out in some
time, and bears upon the most important factor in the decision to raise rates.
From the
minutes, market participants will be trying to figure out why there seemed to
be so many FOMC committee members giving guidance to the effect that a rate
rise would take place at the last meeting, only for nothing of the sort to
happen. How much weight was given at the meeting to the international economic
situation, for example, the risks to which were further highlighted by the IMF
recently in its latest quarterly report?
In the UK,
interest rate rise expectations seem to get pushed further and further back in
time, and this situation is not helped by falling consumer confidence, rising
unemployment and softening UK GDP. In all cases, inflation which is threatening
to become deflation is also ever present in the minds of the policy makers.
The ECB
release today is called the “ECP monetary policy meeting accounts” and is more
in the nature of a formal review of the financial markets, economic and
monetary developments. Reports of discussions at the last meeting are not
attributed to the members that made the contributions. While it is watched, and
has the potential to cause disruption, the market normally takes the view that
anything of note will have been dealt with in the President’s remarks after the
last meeting and the answers to reporters’ questions after that.
… but FOMC minutes are already
obsolete
The new policy
of the Bank of England of releasing the minutes of the monetary policy meeting at
the same time as the resulting monetary policy statement and interest rate
decision, the release of the Non-Farm Payrolls report in the US since the last FOMC
meeting took place, but before the FOMC minutes were released, and the fact
that so much is dealt with at the ECB statement and press conference after its
monetary policy meeting, all highlight the extent to which the Fed’s convention
of allowing two weeks to go by before releasing its minutes takes from the
transparency and openness that the market should be able to expect from central
banks.
We look
forward to the day when the US monetary authorities take a leaf from the Brits
and start releasing the minutes in the immediate aftermath of the monetary policy
meeting.
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