Fed minutes released: Data on a continued decline in inflation is necessary to start interest rate cuts
The minutes of the meeting held in June by the Federal Reserve (Federal Reserve), which is the central bank of the United States, have been made public. From these minutes, it became clear that the Fed participants agreed on the recognition that further data that can confirm a sustained decline in the inflation rate is necessary in order to begin cutting interest rates.
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✔️ Meeting Overview Over the 2 days until 6/12, the Fed held a meeting to decide on monetary policy, and decided to leave policy interest rates unchanged for 7 consecutive meetings. Also, according to policy interest rate forecasts by participants, the number of interest rate cuts expected by the end of the year has decreased from the previous 3 times to 1 time. According to the liberal arts opinion, the possibility that interest rate cuts will be carried out is infinitely low. According to the minutes of this meeting published on the 3rd, participants agreed on the recognition that “interest rate cuts are not appropriate until further data can be obtained that can be certain that they have continuously declined toward the target 2%,” based on the fact that the decline in the inflation rate has not progressed more than expected.
✔️ Inflation and consumption trends
It was pointed out that although the inflation rate is still at a high level, it has declined moderately over the past few months. Certainly, there has been a decline, but the reality is that the working environment has not deteriorated that much, with employment statistics still ahead.
✔️ Labor Market Outlook
While labor shortages are being resolved in America, several participants placed particular emphasis on the possibility that the unemployment rate will rise drastically through a decrease in the number of job offers. This suggests that labor market trends will influence future monetary policy, but this is not the case for dollars and yen, a situation has become apparent.
✔️ Impact on the dollar to yen exchange rate
Since the details of the Fed minutes have been clarified, the impact on the dollar yen exchange rate is also attracting attention. As the possibility of interest rate cuts has receded, it is expected that the dollar's interest rate advantage will be maintained, and there is a possibility that dollar buying pressure will intensify. There is a possibility that the trend of yen depreciation and dollar appreciation will continue in the dollar-yen exchange rate. If the inflation rate remains at a high level and the Fed continues to take a cautious stance, demand for the dollar as a safe asset is likely to increase, and there is a slight recession related to virtual currency. However, when the economy is on a deceleration trend (the US work environment deteriorates), it is conceivable that risk-off movements will intensify, making it easier for yen to be bought.
✔️ Future outlook
In the market, since economic indicators showing economic deceleration and a decline in the inflation rate are increasing, there is widespread observation that the Fed will begin cutting interest rates at the September meeting. As the Bank of Japan continues to maintain an accommodative monetary policy, the dollar-yen exchange rate is likely to be pressured in the direction of yen depreciation.
✔️ Conclusions
① Due to the disclosure of the minutes of the Federal Reserve, further data is needed to confirm a sustained decline in the inflation rate before interest rate cuts begin.
② A cautious attitude supports the strength of the dollar, and there is a high possibility that the dollar-yen exchange rate will maintain a trend of depreciation of the yen and appreciation of the dollar.
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