FOMC minutes – a rate hike still coming in December?

The FOMC meeting minutes hurt the US dollar, which is back to the back foot. But what does it mean for the next moves of the Fed? Here are two views:

Here is their view, courtesy of eFXnews:

USD: FOMC Minutes: Still Confident Of One More Fed Hike Before Year-End – SEB

SEB  Research comments on today’s FOMC minutes from the July meeting.

“Our assessment of the minutes, we are still confident that the Fed will deliver another rate hike before the end of 2017. However, as we warned earlier, the weakness in inflation means that the Fed could take a pause from rate hikes unless there was acceleration in price increases or wage growth. As the weakness indeed has continued and wage growth has been modest, we have pushed back expectations for the next rate hike from September to December.

Regarding the reduction of the balance sheet, we expect the Fed to use the September 19-20 FOMC meeting to announce that the reduction will start in October. Financial market volatility driven by a debt ceiling stand-off could possibly delay but not cancel the start. Markets are likely to digest today’s set of minutes quickly and focus will shift to the annual Jackson Hole symposium scheduled for August 24-26. Jackson Hole will provide the Fed with another opportunity to clarify its intensions ahead of the next policy meeting,” SEB  argues.

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USD: FOMC Minutes: Balance Sheet Runoff Likely To Formally Announced Next Month – CIBC

CIBC Research comments on today’s FOMC minutes from the July meeting.

Despite the recent run of soft inflation readings, FOMC members appear comfortable moving forward with further tightening. The minutes of the July meeting indicate that many participants still view the recent weakness in consumer prices as transitory, and that most expect inflation to rebound in the coming years.

..As a result, barring some unforeseen events,  we expect the balance sheet run-off to be formally announced next month.

Furthermore, given the still limited concerns surrounding the undershoot of inflation,  a few months of healthy price increases over the back half of this year will keep a December rate hike alive.

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