The Fed minutes showed some desire for a rate hike, but only from a “couple” of members. A move in September is unlikely, but December is still on the cards. Here are two opinions:
FOMC Minutes: ‘Clock Is Ticking For Next Fed Hike But Not In September’ – SEB
Our conclusion: Members of the FOMC are divided – and a rate hike in September is not on the agenda. Still, the Minutes – we believe – paves the way for our forecast of a December rate hike by 25bps. The FOMC statement, released on July 27, revealed an upgrade of the economic outlook while “near-term risks”¦have diminished”.
In addition, the comments made by NY Fed President William Dudley (Aug 16) aimed at steering markets’ expectations in “the right direction” ahead of today’s Minutes; we believe markets drew wrong conclusions from SF Fed President Williams’ “Economic Letter” (Aug 15) which actually focused a lot on fiscal policy as an instrument to support growth while stating [related to a possible change of the inflation target] “you don’t change horses in the middle of a stream”. Since the FOMC is “data-dependent” were and has a near-term focus, it wants policy flexibility to change rates when it’s appropriate. Near-term uncertainties about underlying strength in private consumption and investments – and G20/European/Brexit political events in September, justify a wait-and-see stance. The US presidential election on November 8 shouldn’t affect the FOMC as long as corporate investments are not showing signs of being delayed. Financial conditions (possible stock market declines and US dollar strengthening) will be important for the timing of the next rate hike.
FOMC Minutes: Quick Take – CIBC
The statement didn’t provide much evidence of change in the FOMC’s thinking, but the minutes revealed a more divisive meeting. Just as key members’ recent speeches have diverged on the appropriate path of future policy, thwart range of opinions at the July FOMC meeting. Indeed, two members were even ready to raise rates last month, while others viewed the recent spate of volatility in economic data as warranting a delay in the next hike. Fed officials weren’t only divided on the overall timing of rate hikes. FOMC voters were divided on whether the current pace of job gains (which has decelerated from last year) is something to be worried about. Moreover, there was a discussion about whether the current low rate environment is intensifying financial stability risks, where several members stated that the extended period of low rates was leading to an increase in asset mispricing. While the minutes appear more hawkish than the official statement, there have been a selection of disappointing data releases since the time of the meeting, employment not withstanding.
As a result, there has been evidence for both sides to point to, which has resulted in recent speeches by FOMC members containing a wide range of views of the appropriate course of policy.
We continue to believe that the data and underlying risks to the economy won’t warrant a rate increase until December.
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