FOMC minutes point to more hawkishness from Fed

Edward Bell - Senior Director, Market Economics
Published Date: 25 November 2021


  • Minutes from the November FOMC meeting showed the increasing concern Fed officials have about inflation. While the language still highlighted that some of the inflation drivers were “transitory,” some policymakers highlighted that inflation could be more persistent than the Fed’s earlier assumptions. Moreover, “some participants” favoured accelerating the pace of tapering by more than the USD 15bn per month as started in November. With the Fed chair nomination process out of the way, we expect the Fed will start to target inflation more directly although at this time the balance of risks to us suggests that an accelerated taper isn’t warranted.
  • Elsewhere in the US real consumption gained by 0.7% in October, a strong start to Q4. The gains came despite a moderate increase in personal incomes, up by 0.5% as more unemployment benefits waned. The Fed’s preferred inflation measure, the core PCE deflator, rose by 4.1% in October, its highest level since 1991. Given that headline inflation doesn’t look to be slowing any time soon, there is likely to be more upward pressure on the PCE in the coming prints. Durable goods orders slipped on a headline basis in October thanks to a drop in aircraft orders. However, core goods orders increased by 0.5% suggesting that investment is still holding up even amid high prices.
  • The US labour market reported more signs of rude health as initial jobless claims fell to less than 200k in the week ending November 20, their lowest level since 1969. The strong report comes ahead of next week’s non-farm payrolls which is expected to show another strong gain for the labour market and adding to the argument for the Fed to normalize policy faster.
  • Germany’s IFO business climate index fell to 96.5 in November from 97.7 a month earlier, suggesting that the German economy had been losing momentum into a worsening Covid-19 crisis. Both the current conditions and future expectations components declined and are likely to deteriorate further as high levels of Covid-19 in the country threaten tighter restrictions or even another lockdown.

Today’s Economic Data and Events


  • Fixed Income
  • Treasury markets whipsawed between the hawkish FOMC minutes and the good economic data out of the US with the 10yr yield moved up to nearly as high as 1.7% in the early US session. Those moves were later faded during the day, however. At the close, short-run yields edged higher with the 2yr UST gaining almost 3bps to close at 0.6398% while the 10yr yield fell 3bps to 1.6341%.
  • Other benchmark markets showed similar moves but generally ended the day near unchanged with 10yr bund yields at -0.23% and 10yr gilts at 0.995%.


  • The dollar recorded some modest but widespread gains on the back of the hawkish FOMC minutes. The DXY index added 0.4% to close at 96.875 thanks to a 0.44% drop in EURUSD to 1.1199 and a gain in USDJPY to 115.43, up 0.25%. GBPUSD was another notable decliner, falling by 0.37% to 1.3328.
  • In commodity currencies, USDCAD was the standout with little apparent change on the close. Both AUD and NZD sank, however, even as the RBNZ again hiked rates. The AUD fell 0.44% to 0.7196 while the NZD was down more than 1% overnight to 0.6875.


  • Benchmark US equities wobbled after the FOMC minutes with the Dow ending the day near flat albeit with a negative bias. The S&P 500 managed gains of 0.2% and the Nasdaq added more than 0.4%. In Europe, the FTSE was the notable gainer with a rise of 0.27% compared with a drop of 0.18% in the EuroStoxx 50.
  • In Asian markets today, most indices are showing gains with the Nikkei up 0.8% and the Hang Seng and CSI showing moderate upside.


  • Oil prices showed little apparent move overnight as the market waits for the OPEC+ reaction to a release of strategic crude inventories. Brent settled at USD 82.25/b, down less than 0.1% while WTI closed at USD 78.39/b, a drop of 0.14%.
  • OPEC’s economic advisory board estimated that the release of crude inventories by the US, China, Japan, South Korea and the UK would flood markets, contributing to a potential oil market surplus of more than 2m b/d in January if OPEC+ also carried out their monthly production increases.
  • The IEA also pleaded with OPEC+ countries to end the “artificial tightness” in markets at the moment, saying that the prices were “in the danger zone” for most developing economies.
  • US commercial crude inventories rose by 1m bbl last week although there were steady draws across the rest of the barrel, taking total stocks down by nearly 6m bbl last week. Production rose by 100k b/d last week to 11.5m b/d while product supplied rose by a bit more than 100k b/d to 21.8m b/d.

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