Tonight's FOMC Minutes: Markets Ready for a Shock, Gold Ready for Volatility
Global markets are entering a "wait and see" phase ahead of the release of the FOMC Meeting Minutes from the January 27-28 meeting, scheduled for release tonight Indonesian time. These minutes are important because they provide deeper context: how united Fed officials are in holding interest rates, and how much room there is for future cuts.
Data-wise, the US labor market remains solid. The latest employment report showed nonfarm payrolls increased by 130,000 in January and the poverty rate fell to 4.3%, strong enough to make the Fed feel there's no need to rush into easing policy.
However, on the inflation front, price pressures appear more subdued than expected. The January CPI rose 0.2% (m/m), lower than the expected 0.3%. This provides encouragement to the government, which believes inflation is moving in the right direction, although not yet completely safe.
The final minutes serve as a "translator of the Fed's intentions": will softer inflation data be enough to pave the way for a cut, or will strong employment data lead the Fed to opt for "higher for long." In recent comments, Fed Governor Michael Barr emphasized that interest rates will likely need to be held "for some time" until there is stronger evidence that inflation is moving sustainably toward the 2% target.
On the other hand, a slightly more accommodative tone remains. Chicago Fed President Austan Goolsbee said "some" cuts are still possible this year if inflation truly returns to the 2% target, but he also cautioned that the services inflation component still needs to be closely monitored. This difference in emphasis is likely to be reflected in the minutes, which include internal questions about when the right time to begin easing policy is.
Opinion predictions for tonight's minutes: The minutes will likely highlight three messages. First, the Fed still wants more confirmation before locking in a policy-restricting path. Second, the risk of a "rebound" of inflation has not disappeared, so caution remains dominant. Third, the door to a price cut remains open, but the conditions are clear: inflation must consistently weaken without sacrificing economic stability, as current employment data gives the Fed room to slow down.
The impact on the market (min base case tends to be hawkish-hold): gold and silver are at risk of being held back/under pressure, as expectations of prolonged high interest rates typically support yields and reduce the appeal of non-yielding precious metals; the dollar has the potential to strengthen or at least remain solid as the market resists price cuts; while oil is likely to be mixed, a stronger dollar could restrain oil's rise, but the ultimate direction will still depend on many factors influencing geopolitics and global risk sentiment. (asd)
Source: Newsmaker.id
