Daily Market Color

Fed Minutes Display Inflation Concerns

Inflation Debate Highlights Fed Minutes – Today’s release of the minutes from the FOMC’s September meeting echoed much of what has been communicated over the past three weeks by various Fed officials.  The minutes reiterated that an additional rate hike by the end of this year remains a likely outcome despite consumer price data falling below the targeted growth rate.  Views amongst FOMC members were widespread, ranging from the need for inflation data to show the targeted 2% growth before increasing rates to concerns that holding off on another rate hike could cause an uncontrollable surge in inflation.  In the end, “It was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the minutes stated. Over the past three months, inflation has remained unchanged at a 1.4% annual pace.   Fresh inflation data is set to be released on Friday, with median forecasts calling for a 2.3% YoY gain in the overall CPI index and a 1.8% rise in core CPI.



All three major US stock indices edged higher on the day to new record highs, with the DJIA and S&P 500 up 0.2%, and the tech-heavy Nasdaq up 0.25%.  Treasurys experienced a modest rally from the beginning of the session, and yield/swap rates are down 1-2 bps across the curve, with the 10-year note yield falling just below 2.35%.  The US dollar weakened 0.3% against major currencies, with the largest declines seen against the euro (-0.5%) and lira (-1.6%).  In commodities, crude oil futures inched higher on the news of increased global demand, as WTI crude climbed above $51/barrel and Brent crude rose to $56.65/barrel.


Evans Among the Doves

Speaking at a conference in Zurich earlier today, Federal Reserve Bank of Chicago President Charles Evans provided a slightly more dovish tone than markets have grown accustomed to over the past month, as he presented his views on the appropriateness of another interest rate hike in 2017.  Evans noted particular concern with the recent lull in consumer price growth and stated that “I don’t really see any harm in waiting longer just to take more stock of the inflation situation.”  In contrast to recent Fedspeak which has downplayed low inflation and labeled it as “transitory”, Evans expressed that “I’m a little nervous that unless inflation expectations start to move up in a way that’s much more consistent with a higher inflation objective, then the next couple of moves might be not very constructive.”  The current probability for a FOMC rate hike at its December meeting is near 77%, as per Fed Fund futures.   


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