The Federal Reserve’s January meeting minutes, along with economic data on the U.S. housing market and purchasing prices, will punctuate Wednesday’s docket of market-moving releases.
At 2 p.m. ET, the Federal Open Market Committee (FOMC) is poised to release the minutes from its January meeting, during which policymakers voted to keep interest rates unchanged at a band of between 1.50% and 1.75%.
The release comes on the heels of last week’s two days of congressional testimony from Fed Chair Jerome Powell, wherein Powell said that the U.S. economy remains in a “very good place” despite new concerns raised from the coronavirus. In a more recent set of public remarks Tuesday, Dallas Federal Reserve President Robert Kaplan said the outlook was “clouded by the impact of the coronavirus,” but reiterated that monetary policy at present was “roughly appropriate.”
“The minutes in the January FOMC meeting may provide additional details on how FOMC participants viewed the outbreak of COVID-19 in late January. However, because of the continued rise in the number of new cases since the FOMC meeting, discussions may be somewhat stale,” Nomura economist Lewis Alexander said in a note Friday.
“It will be important to see if the committee provides any context as to the outbreak eventually being categorized as causing a ‘material reassessment’ in the outlook, and hence possible easing,” Alexander added.
The minutes may also provide further insight into the FOMC members’ views on the Fed’s balance sheet policy, with Powell having indicated that both Treasury bill purchases and role of repo operations in the open markets would decline during the second quarter.
Starting last Friday, the New York Fed announced a further tapering off of its repo operations by bringing the bank’s daily overnight repurchase agreements cap down by $20 billion to a limit of $100 billion, deepening a reduction introduced in January. The Fed, however, is still continuing purchases of $60 billion per month in short-term Treasury bills as a technical adjustment to increase reserve levels and maintain control of its benchmark interest rate.
And finally, market watchers will also be monitoring the meeting minutes for indications of how FOMC members plan to address the U.S. economy’s persistently below-target inflationary trends.
“It is possible that officials discussed tweaks to the policy framework – including switching to an average inflation target, or at the very least, including language in the statement that signals the Fed would be more open to allowing inflation to overshoot, after a decade of undershooting,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note. “The statement issued after this last meeting included a change that the Fed wanted to return inflation ‘to’ the target rather than just ‘near’ it.”
Economic data releases scheduled for Wednesday include the Census Bureau’s monthly report on housing starts and building permits, and the Labor Department’s January producer price index.
Consensus economists expect housing starts declined by 11.4% month over month to a seasonally adjusted annual rate of 1.425 million in January, according to Bloomberg-compiled data. This would unwind some of the surging 16.9% increase seen in December, when housing starts had risen to a 13-year high of 1.608 million. Even with the anticipated decline, January’s expected housing starts reading would mark the second-highest level for new-home building this cycle.
“Housing starts probably dropped back after December’s weather-related surge, but should remain on a solid upward trend in 2020,” Pearce said.
Meanwhile, building permits – a proxy for future home-building – are expected to rise by 2.1% to a seasonally adjusted 1.45 million for January. This would reverse the 3.7% decline to 1.42 million seen in December.
Separately, the Labor Department’s January producer price index is expected to show just a modest uptick in producer prices over last year, underscoring still subdued inflationary trends. Headline producer prices are expected to have risen 1.6% in January over last year, accelerating slightly from December’s 1.3% year on year rise.
The core PPI, which excludes more volatile food and energy prices, likely rose 1.3% after a 1.1% year over year increase in December. This measure of producer prices will strip out the impact of lower energy prices at the start of this year, with concerns over the coronavirus’s impact on energy demand in China weighing on U.S. and Brent crude oil prices.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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