Beijing time, November 20 – The release of the minutes of the Federal Reserve’s October monetary policy meeting triggered shocks in global financial markets. The minutes revealed that officials have “significant differences” over the policy path for December, a signal that directly reversed the market’s previous expectations for loose policies. Data from the CME FedWatch Tool shows that as of press time, the market’s probability of a 25-basis-point rate cut in December has plummeted from 58% a week ago to 31.8%. The U.S. dollar index strengthened accordingly, with the USD/JPY rising 1% to 157.07, hitting a new high since mid-January.
The core of the disagreement lies in balancing inflation and economic growth. “Many” officials believe that maintaining the current interest rate level throughout the year may be appropriate, worrying that further rate cuts will exacerbate the risk of entrenched inflation. In contrast, “several” officials support another rate cut, citing that while core inflation remains relatively high, it has shown a steady downward trend. Notably, the U.S. Bureau of Labor Statistics canceled the separate release of the October non-farm payrolls report due to data collection issues, merging it with the November data to be released on December 16. This data vacuum has intensified market volatility, leading to heavy selling of federal funds rate futures, with the January contract falling to its lowest level since August 26.
The labor market has become a key basis for policy debates. The minutes indicate that officials generally agree that the U.S. labor market shows “no signs of rapid deterioration,” and the downside risks to employment and economic growth have “diminished,” which provides support for some officials to adhere to hawkish stances. Meanwhile, financial markets have shown a divided trend: the three major U.S. stock indexes closed generally higher on Wednesday, with the Dow Jones Industrial Average edging up 0.1%, the Nasdaq Composite rising 0.59%, and the S&P 500 Index gaining 0.38%, with technology stocks performing particularly strongly. In contrast, the precious metals market rose against the trend driven by risk-aversion sentiment, with spot gold and New York gold futures both breaking through $4,100 per ounce, up 0.55% and 0.43% intraday respectively, having previously hit a high of $4,130. For global investors, the uncertainty surrounding Fed policy will continue to be a core driver of market volatility, requiring close attention to the combined impact of December’s non-farm payrolls and inflation data.
