According to the Federal Reserve, there is no inflation risk associated with their policies. The Federal Open Market Committee (FOMC) indicated that inflation is expected to remain below its two percent target and does not see a “trade-off between its employment and inflation objectives.”
The Federal Reserve did mention that forward guidance on interest rates would have to improve, yet policy makers would seek their goal of full employment before increasing interest rates for the first time in eight years. Nonetheless, the central bank does believe the benchmark rate would remain near-zero for a “considerable time” after the latest round of asset purchases end.
The minutes included that early communication of their exit strategy (if there is one) would enhance the credibility of monetary policy. In their March meeting, FOMC members said that rate will remain low as long as unemployment exceeds 6.5 percent and inflation remains under 2.5 percent. However, Fed Chair Janet Yellen has moved towards a “broader range” of economic indicators to determine Fed guidance, but it remains vague and confusing.
Unemployment currently stands at 6.3 percent, which is contributed to the nearly 800,000 individuals that dropped out of the labor force last month. This contributed to the lowest participation rate since 1978.
The dollar quickly gained after the minutes release (and a dramatic fall in the yen), but gains have been paired back as market participants begin to digest the minutes. USDJPY has rebounded from 100.81 (just shy of the 100.75 near-term target) to 101.45. EURUSD has bounced from 1.3634 to just under 1.6770.
Yen futures rebounded off the hourly 200 EMA but is kept in a small range.