December Policy Outlook Changes, Rate Cut Expectations Significantly Narrowed
The latest minutes released by the Federal Reserve have reinforced external perceptions of a cautious policy stance. The minutes indicate that although policymakers generally agreed on the previous rate cut decision, there was significant internal division on the possibility of further easing in December. Several statements suggest that the conditions for a third consecutive rate cut have not been met.
The minutes pointed out that some members believe excessive easing could lead to inflation risks, while more members are cautious about further rate cuts, believing that the current economic environment does not necessitate continued policy easing. Overall, the committee seems more inclined to hold a wait-and-see approach rather than rushing into further easing actions.
Market analysts have noted that in the absence of key economic data, the Federal Reserve's policy basis is constrained, naturally leading decision-making towards caution.
Data Shortage Weakens Policy Judgment, Core Inflation and Employment Become Sole References
Due to the government shutdown, the release of a series of key statistics, including October's non-farm payroll data and some inflation metrics, has been delayed. The minutes emphasize that the lack of sufficient new information will make it difficult for members to alter the current policy inclination.
In the coming days, market focus will be on the rescheduled September employment report, core PCE price index, and October CPI. If there is insufficient evidence of cooling inflation, the likelihood of the Federal Reserve maintaining the current interest rate range will increase further.
According to futures market pricing, the probability of a December rate cut has plummeted to about one-third from the high level a month ago, fully reflecting investors' reassessment of policy outlook.
The Dollar Continues Strong, Technical Support Points to Further Upside
The change in policy inclination is immediately reflected in the dollar's performance. The dollar index has risen for five consecutive trading days, successfully staying above key integer levels and approaching its highest point in six months. The market attributes the strong performance to declining rate cut expectations and improved safe-haven demand.
From a technical perspective, the dollar index is currently testing the resistance region around 100.30. If it breaks further, it may confirm the previously formed medium-term bottom structure, laying a solid foundation for the index to advance to 101.00 or even 101.50.
Some chart analyses also indicate that the dollar index may be completing a cup and handle pattern, which, once confirmed, typically suggests accumulating momentum for further upside.
On the downside, a break below the support around 99 and key moving averages could signal a trend weakening.
Market Focus on Inflation Performance, Policy Tone May Turn More Conservative
Against the backdrop of high uncertainty regarding policy paths, the market broadly believes that the Federal Reserve needs clearer signs of improving inflation before reconsidering rate cuts. Although current price pressures have somewhat eased, they are still insufficient for members to comfortably continue easing monetary policy.
Economists suggest that before the intensive data releases, market volatility may increase, and the dollar's movements will continue to reflect dynamic adjustments in policy expectations.
Overall, the minutes showcase a more hawkish stance from the Federal Reserve, further reducing the likelihood of a December rate cut. With key indicators about to be released, the coming weeks will become a crucial window for determining the policy direction.
