FOMC Minutes Assess More Dovish, US Dollar Drops

The minutes of the FOMC meeting show that members are not as aggressive as the market previously thought. As a result, the dollar also declined.

The minutes for the January 2022 FOMC meeting which were released this morning (17/February) stated that The Fed's policy makers will immediately begin raising the benchmark interest rate and reducing bond purchases. Some members also expressed their concern for US financial stability. According to them, monetary easing has been able to cause substantial risks if it is maintained.

"Given the current high level of holdings of Federal Reserve securities, meeting members observed that a significant reduction in the size of the balance sheet would be appropriate policy," the FOMC meeting minutes read.

US inflation continues to soar is the main reason why interest rate hikes must be carried out. In fact, an aggressive increase may be required if inflation persists. However, the Fed's officials actually expected that inflation would decrease after the first Rate Hike was implemented.

"Most of the participants noted that if inflation does not decrease according to their expectations, then the appropriate policy for the FOMC to take is to remove accommodative policies at a faster pace than anticipated," the minutes said.

Responding to the contents of the minutes of the meeting, analysts predicted that the Fed could raise interest rates at every FOMC meeting this year. However, with the new third wave of Corona virus infections peaking in the US when the meeting was held, the minutes actually did not provide a clear indication of how high the point of interest rate hikes should be implemented, and what the exact direction of the next policy would be. The idea of a half-percent rate increase floated by the President of the St. Fed. It is also doubtful that Louis James Bullard will be immediately announced next month.

Market Lowers Hawkish Expectations, Dollar Slumps

The market judges that the FOMC minutes this time are more dovish than the last policy announcement. Hence, stocks are declining and the US Dollar is weakening. The Dollar Index is down 0.18% to 95.80 at the time of writing.

"The market is revising their interpretation (of the Fed's monetary policy) to a relatively dovish expectation," said Simona Mocuta, economist at State Street Global Advisors. "Frankly, I find the Fed anticlimactic."