Wednesday, October 7, 2015

Three major central bank minutes to be released today | … but FOMC minutes are already obsolete

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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