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The FOMC Minutes: To Confirm September?

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There will be a lot of attention on tomorrow’s release of the FOMC Minutes, even though not much happened then. Essentially, the last time around, the Fed simply punted the decision forward by a month. That was after three months in which headline inflation had been ticking higher, even though the core rate kept coming down.

Now, the situation is a little different, with inflation having turned around. All three of the main CPI measures (headline, core, PEC) are trending lower. That might give the impression that the minutes would be out of date. But it’s actually common for members to ‘revise’ their comments to reflect data that has come out since the last meeting. And that would definitely include the latest inflation data.

What Are the Forecasts?

Right now, the consensus among economists is that the Fed will get around to cutting rates in “third quarter”. In other words, not in August, because there is no Fed meeting then. There also isn’t a meeting in October, though maybe the meeting in early November is being taken into account. The market, on the other hand, has priced in a little over a 50% chance of a rate cut in September.

Therefore, the market will be looking for confirmation of easing starting in September, and indications to the contrary will be what shakes up the market. The debate is largely over whether it will be in September or November, with the latter seen as slightly more hawkish. In order to seriously jerk the greenback in either direction, there would have to be something to indicate easing starting in July, since that is seen as very unlikely.

It’s Not Just the Key Dates

July is often a non-event for the Fed, because it’s right ahead of their summer ‘vacation’ as it were. In August, the Fed holds its much-anticipated Jackson Hole Symposium, which is often the launch platform for changes in direction of monetary policy. As it’s not a formal meeting, no change of policy is actually implemented. But it can be communicated to the market to get ready for the change that actually happens in September.

The feeling is that if there is no easing in June, then the Fed will likely wait until the Jackson Hole Symposium to suggest that easing will start soon. But, by that same token, if there would be easing at the June meeting, then that would presumably have been communicated at the last meeting. So, historical practices of the Fed seems to indicate that rates will stay on course for the rest of the summer.

Indications from the Members

Various FOMC members have spoken since the last meeting, and have generally stuck to the script set by Chairman Jerome Powell: We need more data. Just in the last couple of days we’ve heard from Mester, Daly, Jefferson and Barr, all voting members. And their message has been the same: The latest downturn in headline inflation is progress, but more data points are needed to confirm a trend.

That could mean that there won’t be much to shake up the markets in the minutes, because it will largely reflect what has already been seen. But, a shoring up of the expectations for September would likely be seen as dovish, which could end up hurting the dollar anyway.

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