Dovish FOMC Minutes

The US Federal Reserve Bank yesterday released minutes of its August monetary policy meeting: a 0.25% interest rate hike is signalled for September. Markets have reacted with confusion. Was the tone hawkish or dovish? Our view is that the lack of new evidence to increase the pace of hikes indicates a dovish Fed. US forward rates have come off their high; EUR/USD’s pullback is a function of trading dynamics rather than a shift in USD sentiment.

Markets will now shift their attention to the Jackson Hole monetary conference, Fed Chair Jerome Powell’s speech there and any reaction from President Trump. Trump continues to ask for easier monetary policy. He worries that tighter policy will kill the fiscal boost from his trade policies. In normal circumstances, Trump’s remarks would be ignored, but in light of Turkey’s President Erdogan interventions, markets are sensitive to central bank independence. Honestly, there is a huge difference between Erdogan’s actions and Trump’s talk. We don’t expect Trump to act on impulses, besides, he has bigger worries with the Mueller investigation and convictions of Manafort and Cohen. Should the Democrats win November elections, we believe they will try to impeach Trump.

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