23 February 2023
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Fed minutes reaffirm hawkish stance

By Daniel Richards

The minutes of the Fed meeting ending 1 February showed that the Committee believed “ongoing increases” in the Fed Funds rate would be needed to bring inflation back down to 2%, even as inflation data and consumer spending had already started to slow. While most officials agreed that the pace of hikes should be reduced to 25bp, “a few” called for another 50bp hike to bring the Fed Funds rate into sufficiently restrictive territory. Over the last couple of weeks, James Bullard and Loretta Mester have said they favour 50bp increments but neither are voting members this year. The Committee agreed that monetary policy would need to remain restrictive for “some time”.

The recent run of strong activity data and upward revisions to the CPI occurred after the last meeting, and that some of the concerns in the FOMC around recession risks may have abated.  The FOMC will publish updated economic and interest rate projections at its March meeting. The market is currently pricing in a peak Fed Funds rate of 5.5% by the middle of this year and then easing in the fourth quarter to 5.25%.

The Reserve Bank of New Zealand raised its cash rate by 50bp to 4.75% as expected yesterday and kept its forecast of a peak cash rate of 5.5% this year, implying another 75bp of hikes.

Saudi Arabia has deposited USD 1bn in Yemen’s central bank to help support the currency, according to Bloomberg. Another USD 1bn deposit had been made in November 2022.

Key Economic Events and Data

14:00 Eurozone CPI (Jan final) forecast -0.2% m/m and 8.6% y/y

15:00 Turkey rate decision forecast -100bp to 8%

17:30 US Q4 GDP (second estimate) forecast 2.9% q/q annualised

17:30 US initial jobless claims (Feb 18) forecast 200k       

Fixed Income

  • Minutes from the FOMC’s early February meeting didn’t shift market perceptions on the outlook for rates in a meaningful way as the flow of economic data since the start of the month has cleared a path for additional rate hikes. Reaction in US Treasury markets was relatively muted with yields on the 2yr UST closing lower by about 3bps to 4.6933% while 10yr USTs also rallied with yields down 4bps to 3.9156%.
  • Market pricing continues to imply a cut in rates by Q4 which sets up more tension if the Fed carries out a string of additional, if smaller, hikes.
  • European bond markets closed relatively unchanged with a slight positive bias. Emerging market bonds had a mixed day though some managed to recover a bit of the prior day’s losses. South African 10yr yields fell 8bps to 11.268% along with rallies in emerging European bonds. Turkey 10yr bonds fell, however, with yields up 8bps at 10.28%.
  • The central bank of Turkey sets policy today with market expectations for a 100bps cut in rates.    


  • The dollar rallied a second day running as the FOMC minutes showed that the Fed is still prepared to keep rates moving higher. EURUSD fell 0.4% to 1.0605 even as data in the Eurozone has also shown positive signs lately. GBPUSD fell 0.5% to 1.2046 while USDJPY dropped by 0.1% to 134.84 in favour of the yen. The yield on 10yr JGBs edged above the Bank of Japan’s target range as markets anticipate a shift in monetary policy when new governor Ueda takes control.
  • Commodity currencies all dropped along with an underlying move away from risk assets. USDCAD added 0.1% to 1.3522 while AUDUSD fell 0.7% to 0.6804 and NZDUSD dropped by almost 0.1% to 0.6218.


  • Global equity markets saw further losses yesterday, although they were not so pronounced as those on Tuesday. In the US, the NASDAQ managed to climb 0.1%, but both the S&P 500 (0.2%) and the Dow Jones (0.3%) ended the day lower as concerns around rate hikes remained to the fore.
  • It was a similar story earlier in the session in Europe where the DAX closed flat but the CAC dropped 0.1% and the FTSE 100 closed 0.6% lower. The composite STOXX 600 fell 0.3%.
  • Locally, the ADX lost 0.6% and the DFM 0.9%. The Tadawul ended down 1.0% while the EGX 30 and the Bist both lost 1.5%.


  • Oil prices came off sharply overnight with both Brent and WTI falling by nearly 3% to USD 80.60/b and USD 73.95/b respectively. That was the lowest close for both contracts since the start of February.
  • Data from the API showed a build in US stockpiles of about 10m bbl last week along with moderate gains in both gasoline and distillate inventories. Official data from the EIA will be released later today, one day later than usual thanks to a public holiday at the start of the week.  

Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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