FOMC December meeting minutes indicate increased economic uncertainty

The Federal Open Market Committee (FOMC) December meeting minutes maintained a dovish tone, indicating increased economic uncertainty in the world’s largest economy. Although the minutes point to raised estimates of the gross domestic product (GDP) over the next several years, the participants also indicated that upside risk to their forecasts for growth had increased as a result of prospects for more expansionary fiscal policies over the forecast horizon.

The minutes to the December FOMC meeting, provide little new information relative to that in the FOMC statement, the policy action to raise the federal funds rate, and the press conference at the December meeting. The main take-away is that the monetary policy outlook, as reflected in the dot plot and summary of economic projections, is still largely based on pre-election assumptions.

Some members also noted more favorable business investment given the uptick in business sentiment, while others pointed to downside risks from a stronger dollar, financial vulnerabilities in some foreign economies, and constraints from policy being near the lower bound. On balance, FOMC participants still considered it far too early to judge how the outlook for the economy and, in turn, monetary policy had changed following the election.

At two different places in the minutes, FOMC members shared their concern about an undesired undershooting of the natural rate of unemployment. While at several places the minutes contain discussion on fiscal policy and its potential effects on the economic outlook, the minutes make no mention of restrictive trade policies.

"In our view, the committee is clearly signaling that, should expansionary fiscal policy be forthcoming, and, should such policies generate a further decline in the unemployment rate and faster firming inflation, then the committee would likely respond by raising rates faster than the three-rate hike median in the dot chart," Barclays commented in its recent research note.

Meanwhile, the dollar index traded at 102.15, down -0.54 percent, while at 5:00GMT, the FxWirePro's Hourly Dollar Strength Index remained highly bearish at -140.35 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex