FOMC Minutes to Guide 50bps Expectations

With increasing economists projecting a 50bps hike at the next meeting, FOMC minutes might provide some important clues.

Changing Expectations Since Mester

A lot has changed since the Fed met last. The unemployment rate unexpectedly fell by two decimals to the previously set multi-decade lows. Inflation also fell, but at a slower pace than before. Several Fed officials mentioned that the situation in the labour market is concerning. It's a far cry from Powell's "a couple more" rate hikes to be expected, and then the Fed will pause.

Those comments were right after the last meeting. What shook expectations up were a couple of comments last Thursday, particularly by Loretta Mester. She wasn't on the FOMC at the previous meeting but will rotate on for the coming meeting in March. She said she would have voted for a 50bps hike last time. Although she didn't explicitly say she favoured such a "double" hike at the next meeting, analysts will be keen to review the vote counts and redo the math of who might vote for a more extensive hike next time.

Increased Anticipation of Bigger Hike

Given the context of what the data has shown since the last meeting, it seems more and more investors are expecting a more significant rate hike next time. A week ago, over 90% of economists expected a 25bps hike at the next meeting. Now that number has dropped to just three quarters, with the remainder betting on a 50bps hike.

The day after the release of the FOMC figures has the second reading of US GDP. The broad consensus is that it will repeat the flash numbers seen back in January. Though it's always possible there could be some revisions. A revision to the upside in the current scenario might have more weight in inclining the balance towards an expected bigger rate hike in March.

EUR/USD

The price action of EUR/USD resembles a potential head-and-shoulders pattern that has completed two-thirds of its full pattern. With the neckline down at $1.0483, the pattern would imply a short-term bearish leg before a bounce to $1.0736 unless the right shoulder has completed at $1.0805. If things don't go as presumed, breaking the short-term ceiling could see an advance to the peak of $1.1033, invalidating the H&S and perhaps confirming a flag or pennant instead.

Key Takeaways

With increasing economists expecting a 50bps hike, the FOMC minutes could provide some key signals. Since the last meeting, the unemployment rate has dropped while inflation has declined. Investors anticipate that the next meeting could see a larger hike, with the likelihood increasing if the second reading of US GDP shows an upside revision.