Fed Maintains Caution According to FOMC Minutes

Highlights

• The FOMC Minutes suggest that economic predictions have shown improvement in comparison to the forecasts made in December.
• The Federal Reserve anticipates a decrease in both total and core PCE inflation by 2024.
• Fed officials are aiming to build greater certainty before considering the commencement of a cycle of interest rate reductions.  

On February 21, 2024, the Federal Reserve disclosed the minutes of the Federal Open Market Committee meeting held on January 30 – 31.

The FOMC Minutes revealed that the staff's economic forecast for the January meeting was slightly more robust than in the December projections. However, the lingering impact of past rate increases was anticipated to restrain output growth in 2024 and 2025, below the staff’s estimation of potential growth.

As per the economic projections, both total and core PCE inflation were projected to decrease in 2024 and approach the 2% target by 2026. Fed members expect a moderation in consumption growth this year, primarily in the low- and moderate-income categories.

It was highlighted by Fed members that it would be inappropriate to lower the target range until they were confident that inflation was steadily moving towards 2%.

In summary, the FOMC Minutes did not contain any unexpected revelations. The Fed will proceed cautiously to avoid initiating rate cuts prematurely, while also lacking any hawkish news.

The U.S. Dollar Index retracted below the 104 level as traders reacted to the FOMC Minutes. Treasury yields decreased from session highs as bond traders did not identify any new information in the Minutes.

Gold remained relatively stagnant near the $2025 level. The Fed's policy outlook holds significant importance for gold markets. However, the FOMC Minutes did not offer further insights for gold traders.

The SP500 remained under pressure following the release of the FOMC Minutes. Traders directed their attention to the sell-off in the tech sector ahead of NVIDIA’s earnings report.