The Fed’s June decision was cautious and also Yellen was dovish. We managed to forget about everything on Brexit. The Fed’s meeting minutes shed some light on the thinking in the FOMC, but what does this mean for a rate hike? Here are 4 opinions:
Here is their view, courtesy of eFXnews:
FOMC Minutes: A Look In Rear View Mirror; We Still See A Sep Hike – Barclays
FOMC Minutes: Cautious Fed; We Still A Dec Hike – BofA Merrill
Yet uncertainty about the long-run neutral funds rate increased in the minutes as well, which contributed to a lower policy path in the dot plot despite few changes to the economic projections. Our forecast implies a likely further flattening of the dot plot at subsequent FOMC meetings, with just two hikes each in 2017 and 2018 in our base case.
FOMC Minutes: ‘Wait & See’; We See Next Hike In June 2017 – Danske
Little news in the minutes from the June FOMC meeting, which took place just eight days before the UK’s EU vote. Most of the information we already got in the FOMC meeting statement and Fed chair Yellen’s press conference after the end of the meeting.
With Brexit this is even more true and we think the Fed will ‘wait and see’ for even longer. Market participants agree that the Fed is on hold for now as markets only price in a fifty-fifty chance of a Fed hike before year-end next year.
Now that we know the UK voted to ‘leave’ the EU, we have lowered our growth forecasts for the US economy from 1.9% to 1.7% this year and from 2.3% to 1.9% next year. The reason is that the US economy is not immune to a slowdown in Europe. Hence, we also expect the Fed to be on hold until June 2017 and only to hike twice next year (we expect the following hike in December 2017).
We think the risk to our Fed view is balanced so the next hike could come sooner if the impact of Brexit on the economy is smaller than we currently expect (or later if bigger). Otherwise, the FOMC mainly discussed how to interpret the mixed data, especially the weak jobs reports. The minutes state that the FOMC ‘ discussed a range of interpretations of these data ‘.
Quick Take: FOMC Minutes – CIBC
The FOMC minutes, which usually provide some important insight into US monetary policymakers’ thinking, are staler than usual as the meeting occurred prior to the Brexit vote in the UK.
The meeting also took place in the context of added uncertainty with the labour market showing softness just prior to the decision. Even though many members apparently believed that the slowdown in the pace of job gains could be temporary, almost all saw the May payroll print as adding to the very uncertain environment. Keeping in mind that the Brexit vote may have changed some voters’ minds, at the time of the meeting many believed that, if growth were to pick up, policy tightening would be warranted. However, it should be noted that following the UK vote, Fed officials have sounded decidely more dovish in public appearances. Indeed, even during the meeting, many participants saw the level of the neutral federal funds rate being lower than previous estimates, with the revised summary of economic projections released alongside the statement also showing a lower long-term rate. As a result, several officials reiterated that considerable uncertainty meant that rate hikes, when they occur, would have to be gradual.
Overall, the minutes are consistent with our forecast for a rate hike around the end of the year, with Brexit related uncertainties likely taking earlier meetings off the table.
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