FOMC Might be Bullish Coffee

I read the Federal Reserve minutes so you don't have to!

Steady as she goes from the #FederalReserve. This may disappoint #USD bulls who were expecting some fireworks or change in policy.

As those of us who follow coffee know, a bullish USD is bearish commodities and so the recent rally in the #Dollar has weighed on #coffee prices. If that bullishness was misguided then we could see #commodities and the #coffeemarket pick back up.

The core themes of the report were that #inflation and the economic recovery were progressing faster than expected, but that inflation risks were largely transitory (from supply bottlenecks and demand recovery after social distancing reduction) and that the risks to the economy were still high from virus variants.

The committee also reaffirmed their commitment to telegraph any policy changes to the public well before hand.

In the coffee market we need to watch out for how the Dollar moves, and also its cousing the #BRL. The BRL has been showing weakness to match the dollars strength so if the BRL reverses stronger that will also add some bullishness to coffee.

Full Summary of the Fed Minutes below:

TL;DR

Economic recovery going better than expected, risks from virus remain so easy money continues. Inflation high because of “transitory” reasons (supply shortages and demand resurgence) this smooth out in 2022. Tapering end of 2022, and interest rate rise in 2023.

Developments in Financial Markets and Open Market Operations

· Equities rose, dollar fell

· Financial conditions eased

· Mkts focused on low unemployment and high inflation

· Surveys of primary dealers show

o long term inflation expectations are stable/low

o Tapering to begin in 2022 asset purchase to end by 2022

o Target rate increase expected first quarter of 2023

o 0-1.4% increase by end of 2023

o Pressure on money market rates

Staff Review of the Economic Situation

· GDP, inflation up, unemployment down

· Inflation from resurgent demand plus supply bottlenecks

· Housing demand up, home prices up

· Comercial construction down

· Mining and drilling sectors up

· Manufacturing up

· Fed govt spending flat

· Local state govt spending up

· Semi conductor shortages influencing auto industry

· Europe economies robust

· Emerging mkts still struggling to contain virus

Staff Review of the Financial Situation

· Financial conditions ease as mkt participants confident in recovery, that inflation manageable and monetary policy would be dovish

· Mkt Volatility (Vix) is low

· Money is cheap

· Delinquincy rates low

· Home mortgage activity strong

Staff Economic Outlook

· Economy appeared stronger than April forecast

· Near term inflation expectations revised up, but still believed to be transitory

· Expect “well-above” 2% this year, 2022 inflation to be below 2%, 2023 inflation a bit above 2%

· Still expects economic risks are to the downside from Covid, but that these are reducing

Participants' Views on Current Economic Conditions and the Economic Outlook

· Bullish the economy, but constrained by supply disruptions and labor shortages

· Despite gains, labor participation still far from committee’s goals

· Surprised by strength of recent inflation, but still believe it is due to supply constraints, however, these supply constraints could continue into 2022

· Rising prices in housing markets could pose financial stability risks

· Inflation risks “balanced” ie upside risks of inflation offset by downside risks of deflation (supply bottlenecks unwind faster than expected)

· Uncertainty regarding expectations for economy led to uncertainty re Fed Funds rate

· Economy improving faster than expected, so they should be prepared to reduce asset purchases if data continues to confirm this

· Committed to notifying public well in advance of any changes

· Committed to small raise in Fed Funds rate 0.15% to keep it in target of 0-0.25%

Committee Policy Action

· Economy strong, some sectors still affected

· Inflation strong but transitory

· Economy would largely track with progress on virus

· Dovish policy until dual mandate achieved

· Keep Fed Funds Target 0-0.25% until mandate achieved

· All tools available to achieve goals

Worst economic effects from pandemic behind us