FOMC Minutes Uneventful, US Dollar Treading Water before Payrolls Data

The future course of interest rates remains uncertain as the Federal Reserve released its latest batch of minutes from the Federal Reserve Open Market Committee's December meeting, during which the US central bank dropped the notoriously famous "low rates for considerable time" phrase from its statement.

While the Fed reiterated that it won't change rates for the next "couple of meetings", it never committed to doing so afterwards. The US dollar reacted with a big yawn when compared to previous days as the key data release of the month is around the corner.

On Friday, the Bureau of Labor Statistics will release the latest batch of non-farm payrolls data with median market expectations centered around 240,000 jobs created in the final month of 2014.

TD Economics Neutral

There is not much enthusiasm amongst analysts either as TD Economics team states, "The most important word in these minutes was "flexibility". The Fed's somewhat confusing December statement was primarily an attempt to release itself from the "considerable time" straightjacket without shocking financial markets."

Data dependence is the theme which TD Economics thinks the Fed is willing to communicate to the markets and it will take some time for the new data sets to come in. So there is little surprise that the FOMC minutes haven't yielded anything new to the table.

Barclays Capital Remains on the Hawkish Side

Barclays Capital are taking a different approach stating, "The committee remains confident in the economic outlook, expects to make further progress in labor markets and sees inflation as firming gradually in the coming years."

The team from Barclays Capital concludes that the Fed will raise rates in June and expects a range between 0.75 and 1% for the federal funds rate by the end of 2014.

UniCredit Research - Hikes before Inflation/Unemployment Targets Hit

The team from one of the biggest lenders in Italy, Unicredit Research, states, "Lower inflation outlook might mean that the pace of rate hikes will be somewhat slower than assumed thus far."

There is no mystery as to whether or not there are rate hikes as the note issued by UniCredit concludes that the Fed should start normalizing policy before it reaches its inflation and unemployment rate targets. We should add here, that technically, the Fed doesn't have set targets in mind at this point in time.

What Do We Think?

There is little doubt that the Federal Reserve is willing to take on the path of higher rates and regain credibility as an inflation fighting central bank. However, there are two present problems which might make it harder for the Janet Yellen-led FOMC to hike rates - there are no wage pressures to speak of, and hence no inflation to fight.

It is true that the unemployment rate has been falling, yet it is also correct that the rates on the 10-year treasury bond are below 2%. The bond market is not counting on much higher rates in the near future, and should the Fed decide to act we could soon see an inversion, simply because according to recent housing data, prices are turning into negative growth territory while rates remain at low levels.

How's this for a change? Do you think the Federal Reserve will manage to raise rates this year? Share with our team and our readers in the comments section below.