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Markets eye Wednesday’s FOMC meeting minutes, Bernanke speech

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Markets eye Wednesday’s FOMC meeting minutes, Bernanke speech

Last month’s Federal Open Market Committee policy meetings signalled a turning point for the global markets. Following a series of upbeat economic reports from the US, speculation was high that the Fed would finally introduce plans to scale back its monthly asset purchase program. The June FOMC policy announcement effectively put an end to the speculation, signalling that the process is likely to begin this year so long as US unemployment and GDP figures meet expectations. Friday’s jobs report, which showed that the US economy added 195,000 nonfarm payrolls in June, reaffirmed the market’s expectations for Fed tapering this year.

Wednesday marks the release of the June FOMC meeting minutes, which will provide more details concerning the Fed’s stance toward economic growth and price stability. The minutes provide a clear guide to the future of US monetary policy, and whether policymakers see eye-to-eye over this year’s projected stimulus tapering. The minutes could reinforce the market’s hawkish outlook toward US monetary policy, and fuel expectations for interest rate hikes over the near-term.

Fed chairman Ben Bernanke is also expected to speak on Wednesday. Bernanke has stressed several times that QE tapering is contingent on economic growth, and that investors shouldn’t take it as a sign of imminent tightening. Wednesday’s speech should see Bernanke repeat the same message, while remaining upbeat about US recovery. As one would expect, the market has paid little attention to Bernanke’s warnings. Fears over interest rate hikes gripped the market following the June FOMC meetings, sending stock and commodity prices tumbling at the expense of higher yields on US treasury securities.

Bernanke’s Wednesday speech is unlikely to create the same response, but a hawkish tone could certainly reignite fears of imminent rate hikes.

A chief beneficiary of Fed hawkishness is the US dollar, which enjoyed multiyear rallies against some of its major peers. The broad strengthening of the greenback has sent the US dollar index soaring. It closed the New York session at 84.64, a gain of more than 4 percent since June 19. A hawkish reading of the FOMC minutes will likely send the dollar index higher on Wednesday, helping to reassert the greenback’s dominance by week’s end.

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