13 October 2022
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FOMC minutes show members support restrictive policy

By Daniel Richards

  • The minutes from the September FOMC meeting were released yesterday, showing that the committee members remained in favour of restrictive rates and keeping them so in order to curb ‘broad-based and unacceptably high inflation’. Members are more concerned about doing too little in this regard and allowing inflation to become more entrenched than they are by the risks that the tightening pose to the economy. Nevertheless, the minutes noted that a number of members stressed the importance of calibrating ‘the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.’ This chimed with comments from Lael Brainard out earlier this week which stressed the need to be data driven still. US CPI data is released today, but given the tone of the minutes and the hawkish NFP report that was released on Friday, it would take a major downside surprise from the projected 8.1% y/y to see any change in direction from the Fed, with a further 75bps hike likely at the next meeting.
  • UK GDP shrank in August as it contracted -0.3% m/m, worse than the anticipated flat growth. The July figure was revised down from 0.2% to 0.1% meanwhile, which followed a -0.5% m/m contraction in June, setting the UK well on track towards a recession with the 3m/3m measure down -0.3%. Industrial production was especially weak in August as it fell -1.8% m/m compared with projections of a -0.1% fall, as manufacturing declined -1.6%. Demand will likely worsen in the coming months as household’s mortgage costs look set to rise dramatically following the market turmoil of recent weeks, compounding the already highly deleterious effects of high energy bills, notwithstanding some government support. Meanwhile, the Bank of England confirmed that its extraordinary bond buying measures are set to end on Friday, refuting speculation that its purchases would be extended past the deadline.
  • India’s CPI inflation accelerated to 7.4% y/y in September, up from 7.0% in August. This was in line with expectations. Food prices remained a key driver of the headline price gains as they rose 8.6%, while fuel and lighting prices were up 10.4% y/y. Falling food prices should see inflation start to fall through the end of the year but the RBI likely has further rate hikes to come – we forecast a year-end level of 6.40% implying a further 50bps by end-December. Meanwhile, industrial production fell -0.8% m/m in August, down from 2.4% growth in July and far below consensus projections of 1.7% growth. With inflation still high and further rate hikes to come following on from the 50bps in September, pressure on industrial output will continue.

 Today’s Economic Data and Events

  • 10:00 Germany CPI inflation final print. Previous: 10.0%
  • 16:30 US CPI inflation, September, % y/y. Forecast: 8.1%
  • 16:30 US initial jobless claims, week to October 8. Forecast: 225,000

Fixed Income

  • Minutes from the September FOMC affirmed that the Federal Reserve intends to get rates to a restrictive level and hold them there for “some time” and also noted that there may be a need to “calibrate” the level of future rate hikes. To us that sounds as though the Fed is still on course for a 75bps hike at its early November meeting, followed by 50bps in December. Markets showed generally little reaction to the minutes, trading in a relatively narrow range for much of the day. Yields on the 2yr UST settled at 4.2911%, down marginally, while the 10yr yield dipped 5bps to 3.8962%.
  • UK gilts showed much more volatility overnight with a near 20bps round trip bottom to top as markets endured uncertainty on whether the Bank of England would indeed extend its emergency bond buying beyond its deadline of tomorrow. Yields on the 10yr gilt pushed above 4.6% at one point before gilts rallied later in the session with yields ultimately closing unchanged at 4.421%. European markets were generally softer.


  • Sterling remains volatile and subject to enormous political risk in its day to day moves. Uncertainty on whether the Bank of England will indeed continue to support markets and if there will be any further rollback of the government’s tax cut plans are pushing the market to wide moves on a daily basis. GBPUSD rallied overnight by 1.2% to 1.11 as hope gathers that some of the tax cuts will be eased in coming days.
  • Elsewhere, USDJPY extended its gains as the Bank of Japan firmed up its plans to remain accommodative. The pair closed up 0.7%, just shy of 147. EURUSD closed effectively unchanged at 0.9703.
  • Commodity currencies closed mixed with USDCAD closing up 0.14% at 1.3816 while AUDUSD added 0.1% to 0.6278 and NZDUSD gained 0.47% to 0.5609.


  • US equity markets were relatively muted in their moves following the release of the FOMC minutes yesterday, with participants looking ahead to the key CPI inflation print due later this afternoon. The NASDAQ and the Dow Jones closed down -0.1% and the S&P 500 -0.3%.
  • Locally, the DFM closed up 0.2% while the ADX fell by the same amount. Saudi Arabia’s Tadawul gained 0.1% and Egypt’s EGX 30 lost -1.2%.


  • Oil prices fell for a third day running as negativity around demand continues to be the driving force for markets. Brent settled down 1.9% at USD 92.45/b while WTI dropped by 2.3% at USD 87.27/b. OPEC cut its demand growth expectations for Q4 this year and also lowered its demand expectations for 2023, backing up the producers’ alliance decision to cut production last week.
  • The EIA also lowered its forecast for US production in 2023 to 12.36m b/d, down almost 300k b/d from its prior forecast. US production has not materially changed in 2022 as focus for E&P firms has been on profitability rather than investment. A lack of supply growth from the US will help to keep markets relatively tight next year.

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Written By

Daniel Richards Senior Economist

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