The Fed’s meeting minutes from the FOMC meeting of July 28/29th offered no real clues into the possibility of a rate hike in September. The main theme from the FOMC meeting minutes was that while most members believed that the ‘conditions for tightening monetary policy‘ had not yet been achieved but that they were ‘approaching that point‘. The minutes were largely viewed as being dovish especially in light of most members being skeptical whether inflation would return to the Fed’s 2% target rate. This has led many members to focus on the already improving labour markets noting that while being confident on achieving the Fed’s mandate of full employment further improvements could help the case. The expectations being that further improvements in the labour markets would help to boost consumer prices higher.
Some members of the Federal Reserve believed that there could be considerable risks to inflation due to the slump in global Oil prices and the strong US Dollar.
Among the voting members, only ‘one’ member was willing to tighten the monetary policy in July but preferred to wait for more data.
The US Dollar weakened significantly on the meeting minutes as the US treasuries rallied. A risk off sentiment saw a weaker Greenback give rise to commodity risk currencies including the Euro and the British Pound.
Earlier in the evening the monthly US consumer price inflation data was released which yet again offered a mixed bag with a bit of everything for both the doves and the hawks. While on a monthly basis, CPI was weak growing only 0.1% on both the headline and the core, on a yearly basis, the CPI data remained steady at 1.8% on the core, close to the Fed’s target rate of 2%. However, the numbers were overall unconvincing to make the case for a September rate hike.
Furthermore, the renewed decline in Crude Oil prices is likely to put more pressure in regards to inflation either declining further or staying put at the current levels. Crude oil prices fell by over -3% yesterday as the weekly Crude oil inventories showed a surprise build up in stock piles. Crude Oil could slump further as the market expects to see further devaluation of the Yuan in the near term.
The markets are starting to ease their expectations of a September rate hike and could now view October or perhaps December as the most likely meetings for the Fed to hike rates. Unemployment data for the month of July failed to boost expectations as the labour market remained steady but nothing more besides the point that the US unemployment rate stood at a steady 5.3%.
Ahead of the next FOMC rate setting meeting, the markets will see the August jobs report and the PCE inflation numbers including the August CPI data, all of which could prove to be decisive to swing the FOMC member’s votes in either direction on the decision whether to hike rates or not.
Today’s economic data from the US will see the Philly Fed Manufacturing index, the weekly jobless claims and the existing home sales data.
