Special Article: Analysis of FOMC Minutes

The recent FOMC minutes highlighted several critical insights into the Federal Reserve's current stance and future outlook. Many participants noted that low-to-moderate-income households are experiencing increasing financial strains, having depleted their pandemic savings. The minutes reiterated the emphasis on data dependency, with a need for additional information on inflation and noting the risks from geopolitical developments.

While there was no significant new information beyond what Fed Chair Jerome Powell discussed in his post-FOMC news conference, the minutes did reveal modest progress toward disinflation. Participants acknowledged the gradual cooling of the economy and the potential for rate cuts if the job market significantly deteriorates. There were also discussions about the impact of immigration on the labor force, with some participants seeing past immigration as a continuing positive factor.

Overall, the FOMC minutes underscored a cautious approach, balancing between addressing inflation and supporting economic growth, with a close watch on incoming data and geopolitical risks.

Summary:

The recent FOMC minutes highlighted several critical insights into the Federal Reserve's current stance and future outlook. Key points include:

• Economic Strain:Many participants noted that low-to-moderate-income households are experiencing increasing financial pressure as their pandemic-era savings have been depleted. This highlights the broader economic challenge of ensuring financial stability across different income groups.

• Data Dependency:The Fed emphasized the importance of relying on additional data on inflation and other economic indicators to guide their policy decisions. This cautious approach underscores their commitment to being data-driven in managing economic policy, ensuring they respond appropriately to emerging trends and risks.

• Geopolitical Risks:The minutes noted potential impacts from global geopolitical developments, which could influence economic stability. The Fed acknowledged the need to monitor these risks closely as they could have significant implications for the U.S. economy and financial markets.

• Labor Market:Discussions in the minutes included the impact of immigration on the labor force. Some participants viewed past immigration as a continuing positive factor that adds to the labor pool, which is critical for economic growth and stability. However, there were also concerns about the potential tapering of immigration flows.

• Inflation and Disinflation:The minutes revealed modest progress toward disinflation, with participants acknowledging the gradual cooling of the economy. This suggests that while inflation pressures are easing, the Fed remains vigilant about ensuring inflation trends towards their target levels sustainably.

• Potential Rate Cuts:Participants indicated that potential rate cuts could be considered if the job market significantly deteriorates. This highlights the Fed's balanced approach to managing inflation and supporting economic growth, being prepared to adjust rates to maintain economic stability and prevent significant downturns.

Key Influences:

• Economic Strain:Increasing financial pressure on low-to-moderate-income households.

• Data Dependency:Emphasis on the need for additional information on inflation and economic indicators.

• Geopolitical Risks:Noted potential impacts from global geopolitical developments.

• Labor Market:Consideration of immigration impacts and potential rate cuts if the job market worsens.

Potential Movement:

The cautious tone of the FOMC minutes and the emphasis on data dependency suggest that major currency pairs may see heightened sensitivity to upcoming economic data releases. The outlook remains mixed, with potential volatility driven by both domestic economic indicators and global geopolitical developments.

Important Economic Calendar Events for the USA (GMT +8)

• Non-Farm Payrolls (NFP) (Jun)– July 5, 2024: Measures the change in the number of people employed during the previous month, excluding the farming industry.

• Impact:Higher-than-expected NFP could strengthen USD as it signals a robust labor market. Lower-than-expected NFP could weaken USD due to concerns about economic growth and employment.

• Unemployment Rate (Jun)– July 5, 2024: Measures the percentage of the total workforce that is unemployed and actively seeking employment during the previous month.

• Impact:Lower-than-expected unemployment rate could strengthen USD as it indicates job market strength. Higher-than-expected rate could weaken USD due to concerns about rising unemployment.

• Average Hourly Earnings (YoY) (Jun)– July 5, 2024: Measures the change in the price businesses pay for labor, excluding the farming industry.

• Impact:Higher-than-expected earnings could strengthen USD as it indicates wage growth and potential inflationary pressures. Lower-than-expected earnings could weaken USD due to concerns about weak wage growth.