Fed releases minutes

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The Central Bank of the United States – Federal Reserve System (Fed) released the minutes from the last meeting of the Federal Open Market Committee (FOMC). Based on this document, it is clear that the further development of bank rates in the United States of America (USA) will depend on the economic outlook of the USA and this is also associated with the development of the US dollar (USD) exchange rate in the international foreign exchange – Forex market.

According to the US Dollar Currency Index (DXY), which compares the exchange value of the USD with the other six major world currencies, on 8 October 2020, at 6:46 am CET the USD was seen at a price level of 93.58 with a daily depreciation of -0.05%. At the same time the global currency pair EUR/USD was trading at a mutual exchange rate US$ 1.177 per EUR with current daily strengthening of the EUR by +0.08% against the USD.

The FOMC minutes also showed that at their last meeting, committee members feared what would happen if fiscal aid was reduced or disappeared. The Fed kept its benchmark interest rate at almost zero and then stated that this rate would remain until inflation averaged at least 2% over a period of time. At the same time, FOMC members said they did not see the need to provide clearer guardrails for what would be needed to raise rates. This published FOMC minutes of the meeting, which took place on 15, and 16 September 2020, also stated that gross domestic product (GDP) in the United States has experienced “rapid” recovery. The meeting included, among other things, a wide-ranging discussion on the economic outlook, as FOMC members said the economy was doing better than expected due to fiscal aid provided by the White House and the US Congress.

This is now in jeopardy because negotiations on further fiscal aid have been suspended between the White House and the Democrats in Congress, with the outlook that it may not be resumed at all before the November US presidential election. “Many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated”, the minutes said. “The absence of further fiscal support would exacerbate economic hardships in minority and lower-income communities”, it was added. Based on this, investors are looking for improved forward guidance about what specific benchmarks the FOMC would use as criteria. However, FOMC members said that the new language indicating an inflation target averaging above 2% would be sufficient.

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