Today is Thanksgiving Day in the US, so the stock market is closed. With the help of a dovish FOMC Minutes statement, this time of year’s seasonality began to operate again.
At this moment, every dovish comment is positive for US markets. As a result, it is understandable why markets rose following the release, and the US currency fell.
Dovish refers to the Fed’s intention to increase interest rates gradually. The fact that the Fed is already losing money on the securities it bought in 2020–2021 and that inflation has slowed down (at least based on the most recent CPI report) should not come as a surprise, considering how quickly rates were raised this year.
Here are the main takeaways from yesterday’s FOMC Minutes that pushed stocks higher:
- The majority of FOMC members favor a slowdown in the pace of rate rises
- Some members considered that easing supply constraints should lead to lower inflation in the medium term
A substantial majority of FOMC Minutes members favor a slowdown in rate hikes
The Fed’s interest rate hikes in 2022 were the main focus. It did so in a fashion that was so aggressive that the rise of the US dollar hurt most other economies, particularly those in emerging nations.
However, the Fed said Wednesday that a pause in rate increases would likely be necessary soon. As a result, stocks rose despite the changes’ unusually large amplitude, and the US currency fell.
However, this was the core finding of the 12-page FOMC Minutes statement that was made public yesterday. Investors should therefore anticipate a dovish Fed in the future, and we shouldn’t rule out the possibility that the Fed would decide to raise interest rates less than the markets had anticipated at its meeting in December.
Lower inflation expected in the medium term
In 2022, inflation remained stubbornly high and was the main reason the Fed tightened financial conditions. This is due to the Fed’s dual mandate of promoting maximum employment and price stability (i.e., inflation of around 2%).
The job market continued to be resilient and strong, but inflation kept pressuring the Fed to raise interest rates. Some Fed participants anticipate lower inflation in the medium term as supply constraints loosen.
The FOMC Minutes from yesterday were positive for the stock market overall. If the Fed issues a similar message at its meeting in December, US stocks should continue to rise.