Last night, the transcripts of the discussions held during the last FOMC meeting were published. The reading may have strengthened the US dollar. The EUR/USD rate reached a record high this year, going below 1.1200.
According to the so-called minutes, representatives of the Federal Reserve noted that the central bank should be prepared to adjust the pace of asset purchases and raise interest rates earlier than expected. Accelerated responses may be due to the persistence of high inflation, when at the same time the growth path for the economy will remain dependent on the epidemic situation.
A change in attitude among Fed members is evident
Fed policymakers indicated that uncertainty about the inflation outlook has increased and significant price pressures are expected to persist longer than previously expected due to persistent supply bottlenecks. At the same time, FOMC members agreed that progress on immunizations and easing of restrictions should continue to support the recovery and job growth, as well as the decline in inflation. Risks to the growth outlook remain high, however.
Mary Daly, president of the San Francisco Fed, said yesterday that she sees a case for accelerating the Fed's tapering of bond purchases. This marks a change in attitude, as she was previously much more cautious on the issue.
Strong data from the US economy
Weekly claims for unemployment benefits in the US fell to the lowest level since 1969, Q3 GDP was revised upwards to 2.1% and US PCE inflation accelerated by 0.6% month-on-month in October, which could indicate a sharp economic recovery and continued price pressures.
Moreover, personal spending in the U.S. rose 1.3 percent in October, up from a 0.6 percent increase in September. The reading also exceeded market forecasts of 1 percent, the fifth consecutive increase and the largest in seven months. U.S. consumers continue to spend more in the face of large wage increases and despite rising prices. Americans spent more money in October on car purchases and international travel.
How many interest rate hikes in 2022?
The data seems to show that the U.S. economy may be in good shape, which may justify an acceleration in the reduction of the pace of buying. The market may soon focus on how many interest rate hikes there will be in the US in 2022, but here the hint will appear only in December, when the Fed will publish its macroeconomic projections.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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