On The FOMC Minutes: Don't Read Too Much Into Them

Today brings the release of the Minutes of the March 13th FOMC meeting. As Steven Englander of Citi notes today, since the tone of the Minutes reflects the breadth of opinion among FOMC members the risk is that it reads somewhat more hawkish than recent comments by Chairman Bernanke. Persistent hawkishness from other FOMC members could foster the perception that Bernanke will face greater resistance in any push to introduce additional accommodation which could have a negative impact on risk appetite and lend support to USD. This would be particularly true if mentions of possible further easing by FOMC doves are few and far between. Given that interest rate expectations have declined over the past two weeks since the series of speeches by Chairman Bernanke, there does appear to be some room for investors to price in more Fed hawkishness. As reflected in implied yields for December 2013 eurodollar futures, interest rate expectations have dropped nearly 20 bps since March 20th. However, this drop in yields only reverses part of the rise seen in the wake of the Chairman’s earlier Senate testimony and the release of the FOMC statement, so ultimately scope for a rebound should not be open ended. Coupled with the fact that Bernanke’s comments are more recent than March FOMC meeting, this convinces us that risk return in chasing any bout of USD strength upon the release is unattractive.