Federal Reserve minutes- inflation view

Yesterday at 19:00 GMT Federal Reserve (FED) published its monetary policy meeting minutes.

Dollar suffered against its counterparts, after the release of the report since market observed some dovish tone in the report. We dig in deeper into the statement.

We believe with unemployment rate hovering below 6%, inflation to be the most important consideration of FED to raise interest rate,

• Fed expressed concern over the asset purchase (Euro zone, Japan, Sweden) and policy easing (India, China & Canada) and mainly on the falling inflation expectation measured through 5Y/10Y inflation swap. In our view treasury curves might flatten further. Flattening occurs when near term and long term yield spread narrows.

• Fed recognized the domestic fall in the inflation, but as we expected it shrugged off such as the effect of oil price drop. 

• Fed also recognized the strengthening of US economy and other measures.

• Federal Reserve's concern over dollar strength is still minimal.

We believe the US economy is strong enough to handle rate hike & probabilities are very high that FED will proceed through its promise of rate hike this year.

We also believe as the yield curve flattens, FED's push to short term rates will help the curve in favor of inflation expectation. 

Our view of FED outlook, keeps us positive over the US economy and Dollar despite the fall last night.Current 2 year yield stand around 0.58% & 5 year yield at 1.49%