Usually minutes from a central bank are assessed for the nuances they contain. Is there an easing bias? Is there a focus on inflation or GDP growth? However, the release of the minutes from the April FOMC meeting contained a message plain for all to see. ANZ described them as having “a fairly dramatic impact on the market on their release” and Westpac said they were “far more hawkish than expected.” Commonwealth just referred to them as “blunt”.
The minutes said a June rate rise was “likely” if the second quarter data improved. “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen and inflation making progress toward the committee’s 2% objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June.”
Ahead of the release, prices in US cash markets were implying a 19% chance of a June rise. After the minutes were made publicly available, the probability rose to 34% while the probability for a July increase rose from 38% to 51%. US bond rates went higher on the news. 2 year yields rose 7bps to 0.90% and the 10 year yield rose 9bps to 1.86%. The US dollar firmed against other currencies.
Locally, banks such as NAB said the UK June “Brexit” referendum may give the FOMC a reason to delay until July, noting one FOMC member had described the vote as “another variable in the mix”. ANZ’s view was “the negative feedback loop on monetary conditions, as we know, means the FOMC will proceed with great caution”, even though ANZ expects higher US rates this year.
Click here for the full April minutes.