Strategy
Date:2019/11/21

On November 21, 2019, at 03:00 a.m., Beijing time, the Federal Reserve released the minutes of its October monetary policy meeting. Federal Reserve Chairman Jerome Powell and his colleagues have made several speeches since the cut of interest rates in October, yet the minutes of that meeting may still shed light on the strength of conviction among officials that the current interest rate is probably to be poised for a long pause. The minutes indicates no change to the current economic policy stance of Fed in the short term but represents discussions on the trend of the Fed economic policy in the long term.

Economists Kevin Cummins and Michelle Girard wrote in a note this week, “We don’t believe the minutes will meaningfully alter expectations for the near-term policy outlook. However, market participants will be looking for any insights as to what exactly a “material reassessment” to the FOMC’s outlook would entail.” Therefore, the Federal Reserve must reconsider the basic trend and potential pressure tests of the U.S. economy in the coming one to two years, and the Federal Reserve needs to make sure that the relevant policies could be implemented in a timely and appropriate manner, as this is the only way to ensure the basic resilience of the U.S. economy.

From the minutes, we can see some information on U.S. labor force participation which remained robust and positively supported the U.S. economy. October’s job report showed employers adding a better-than-expected 128,000 workers, despite more than 40,000 being absent from payrolls due to a General Motors Co. strike.

As indicated by the federal funds futures contracts, the Federal Reserve expects only one more rate cut over the course of 2020. More neutral language was used in the policy statement to replace the “act as appropriate” pledge.

Under the circumstances where the international money market kept straining, the Fed’s decision to resume its balance sheet expansion to restore bank reserves will be a focus of attention.

The Fed is injecting cash into the system via repurchase agreements to further stimulate the U.S. economic development and avoid the capital shortage in the market. In this regard, repurchasing Treasury bills will be another area of the minutes getting attention.

In general, the current U.S. economic trends still face some uncertainties. On the one hand, the domestic economic indicators that were part strong and part weak caused a dilemma for decision making; on the other hand, the unclear international trade situation posed pressure for import and export. For the future, probably, the Federal Reserve needs more thinking!


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