Fed minutes to show details of decision to cut rates by 50 bps in September

• The minutes of the Fed’s September 17-18 policy meeting will be released on Wednesday.
• The details of Jerome Powell and company’s decision to cut interest rates by 50 basis points are in the spotlight.
• The US dollar index may correct lower on the news, but the bullish path is just around the corner.

The minutes of the September 17-18 US Federal Reserve (Fed) monetary policy meeting will be published at 18:00 GMT on Wednesday. Policymakers eased monetary policy for the first time in over four years and surprised market players with a 50 basis point (bps) interest rate cut. The decision sparked speculation, officials worried about economic progress and suggested more aggressive changes.

Jerome Powell and co decided to cut rates in the September meeting

The Federal Open Market Committee (FOMC) took action after acknowledging progress toward its inflation target. “In light of progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent,” the statement said. However, officials also noted that “job growth has slowed and the unemployment rate has risen but remains low.”

The announcement was not a complete surprise, given that Powell et al had somewhat anticipated the decision to start cutting interest rates. What came as a surprise was the larger-than-expected cut, with market participants mostly anticipating a 25bps cut, with only Fed Governor Michelle Bowman calling for a quarter-point cut .

As usual, policymakers reiterated that future decisions will be made on a meeting-by-meeting basis based on macroeconomic data.

Meanwhile, Fed Chairman Jerome Powell poured cold water on speculation that a big cut came amid concerns about economic progress. In the press conference that followed the announcement, Powell said he saw nothing in the economy to suggest a slowdown was likely, adding that the growth rate was solid, inflation was falling and the labor market was “still at very solid levels. .”

“We’re trying to get to a situation where we restore price stability without the kind of painful rise in unemployment that sometimes came with disinflation,” Powell added.

As a result, the focus shifted to employment. Weak data released throughout September fueled speculation that the central bank will offer another 50bps cut when it meets in November. The US dollar (USD) came under persistent selling pressure as stock markets encouraged cheaper money.

Things changed in the first days of October. The September non-farm payrolls (NFP) report released by the Bureau of Labor Statistics (BLS) showed that the economy added 254,000 new jobs this month, while the unemployment rate unexpectedly fell to 4, 1% from 4.2% in August. These numbers clearly point to a strong labor market, allaying concerns about it.

As a result, market players have abandoned bets on a 50 bps cut in November, with the odds for a 25 bps cut currently at around 85%, according to CME FedWatch Toll.

When will the FOMC minutes be released and how could it affect the US dollar?

The FOMC will release the minutes of the September 17-18 policy meeting at 18:00 GMT on Wednesday. The document may explain the decision and suggest future actions, but at this point, it may be old news. The NFP report really overshadowed any pre-release speculation about the state of the labor market.

With inflation falling, economic growth and strong employment data, the United States (US) appears to be in the right place to allow the Fed to cut rates at a perhaps slower but steady pace.

The minutes will likely show that policymakers are willing to cut interest rates further in November, although the extent of such a cut will depend on future macroeconomic data.

In fact, the US will release September’s consumer price index (CPI) on Thursday, and the numbers will likely have a wider impact on future Fed decisions and thus the USD, rather than the FOMC minutes.

Generally speaking, the more bullish the document, the more pressure there will be on the greenback, while kind words should support the USD.

Technically, Valeria Bednarik, chief analyst at FXStreet, notes: “The US dollar index (DXY) looks comfortably above the 102.00 mark after flirting with the 100.00 mark in September. The overall technical stance is bullish, although another step north is needed to confirm a sustained advance over time.”

“Technically, DXY may correct towards 102.00 ahead of the announcement, with near-term support in the 101.90 region. However, the daily chart shows that technical indicators are holding well in positive territory, with the Momentum indicator still heading firmly north, reflecting buyer interest. At the same time, DXY broke above its 20 Simple Moving Average (SMA), which is gaining upward traction around 101.20, a key area of ​​dynamic support. Finally, the 100 and 200 SMAs hold well above 103.00, capping medium-term bullish potential.”

Bednarik adds: “DXY needs to conquer the 103.00 threshold to extend gains at a solid pace, with the next area of ​​resistance around 103.80. Once beyond the latter, an unlikely scenario post-FOMC minutes, the index will enter a clearer bullish path.”