Al-Watani: The hardline tone of the US Federal Reserve's minutes coincides with the weakness of the dollar
Global markets this week witnessed a widening gap between the signals sent by the US Federal Reserve and the expectations reflected in market pricing. The minutes of the Federal Open Market Committee’s July meeting, released last week, revealed a more hawkish stance than the announced decision suggested. Three members opposed the decision, favoring an immediate interest rate hike, while most members believed that further tightening of monetary policy might be necessary if inflationary pressures do not subside.
Despite this, according to the weekly money market report issued by National Bank of Kuwait, the US dollar continued its decline to its lowest levels in several months, heading toward recording a weekly loss. This occurred against the backdrop of weaker-than-expected labor market data following the meeting, alongside the US Treasury’s move to double its program for repurchasing long-term bonds, which limited expectations for an interest rate hike in September.
In Europe, economic activity data clearly exceeded expectations. The composite Purchasing Managers’ Index (PMI) for the eurozone rose to its highest level in nine months, supported by the strongest recovery in the industrial sector in over four years, as well as strong performance in the German economy, while consumer inflation expectations declined.
In the United Kingdom, economic indicators presented a more complex picture. Private sector activity remained better than expected, while the overall inflation rate accelerated, influenced by the energy price cap. Meanwhile, retail sales recorded their first monthly decline since April.
In the Asia-Pacific region, inflation in Japan continued to rise as energy subsidies were reduced, keeping expectations for the Bank of Japan to raise interest rates in September alive, while economic activity in Australia slowed down. Against this backdrop, the Brent crude mix continued its gains, surpassing the $93 per barrel level, with no signs of easing tensions surrounding the Strait of Hormuz. Energy prices remain a common, influential factor affecting inflation prospects across major economies.
The minutes of the Federal Open Market Committee meeting held on July 28 and 29 showed nine members voting to keep the target range for the federal funds rate at 3.50%–3.75%. Three regional Federal Reserve Bank presidents—Beth Hammack, Neel Kashkari, and Lori Logan—opposed the decision, favoring an immediate 25-basis-point interest rate hike.
Notably, the hawkish stance was not limited to the dissenting members. Many participants believed that further monetary tightening might be necessary if inflation does not decline, with some raising questions about whether current financial conditions are sufficiently tight to bring inflation back to the 2% target.
Some supporters of interest rate hikes also argued that early action could reduce the need for a more aggressive and costly path of monetary tightening in the future.
