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What To Expect From FOMC Minutes? - Views From 10 Banks
Just couple of hours remaining for release of FOMC Meeting Minutes and traders all around the world are eagerly waiting for this news event to better understand future course of action by Fed's as to when they are planning to end QE and raise interest rates.
The following are the expectations for today's FOMC minutes from the July meeting as provided by the economists at Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, and other major banks (Source www.efxnews.com).
BofA: The July FOMC minutes should garner a lot of attention as market participants look for signs of when the Fed may start the hiking cycle. Based on changes to the statement in July, the FOMC is less worried about persistently low inflation, but continues to see "significant" slack in the labor market. We look to the discussion to see how these changes led Fed officials to reassess their views around the timing of lift-off. The June minutes noted that "most" participants thought rates would be significantly below their longer-run level at the end of 2016; for "about half" of those, "the low level of the federal funds rate at that time was associated with inflation well below the Committee's 2 percent objective." We also look for details of the cyclical versus structural debate; of note would be support given to any specific measures to monitor the state of the labor market, and how likely concern about underutilization would keep the Fed from hiking even as the official unemployment rate approaches the NAIRU. Plosser's dissent in favor of dropping the "considerable period" language likely had support from a few sympathetic hawks, but we expect the majority to continue to profess patience before the first rate hike. The discussion about the technical aspects of policy normalization likely continued as well. We see a small chance that a formal update to the June 2011 Exit Strategy Principles will be released as part of the July minutes. More likely, we expect it at the September or October FOMC meeting, and look for July to give some indication of the remaining issues to be resolved. Expect unanimous support for the idea that an updated exit strategy reflects prudent planning and nothing more. The risk is that this discussion, or any other remarks that skew more hawkish — as the minutes regularly do — could trigger a sell-off as the bond and equity markets re-price to an earlier exit. That said, anticipation about Fed Chair Janet Yellen's remarks at Jackson Hole could mute market reaction to the July minutes.
Barclays: We look for the minutes of the July FOMC to contain a more up-to-date discussion on the level of slack and exit principles. The decision to drop the description that the unemployment rate remains elevated in favor of language saying labor resources remain significantly underutilized is likely to have led to a discussion about underutilization. We expect “several” or “some” members to believe slack is being removed faster than previously expected and these members will likely desire a faster transition to rate hikes. We believe the July minutes, like those of the June FOMC meeting, will signal a high degree of consensus about the parameters of the exit strategy. We look for the committee to make these clear as early as the September FOMC meeting.
Credit Suisse: The release of the July 29-30 FOMC minutes is likely to show debate fueled by the faster-improving labor market data. Any clarity on the timing of the first rate hike is probably unlikely at this point, but the minutes may describe continuing discussion related to the exit strategy. We remain biased for USD upside, with EURUSD shorts as our preferred expression.
BNPP: While the minutes are unlikely to send any new policy signal, with the discussion probably dominated by the details of the future policy tightening, the tone of the headlines could read as somewhat hawkish. This favours maintaining or adding to USD longs particularly against the low yielding G10 currencies.
Credit Agricole: The July FOMC minutes will be reviewed for discussion on how recent developments in inflation and employment conditions have influenced Committee members’ views on the timing of the rate lift-off. Some Fed officials, such as Mr. Plosser and likely Mr. Fisher and Ms. George, believe that higher rates may been needed sooner rather than later. Mr. Fisher recently opined that he believed the FOMC was shifting more towards his view. Will that be evident in the minutes of the discussion? We learned a fair amount from the June minutes on the Fed’s evolving exit strategy for the eventual normalization of rates. We will look out for additional analysis, as requested from the Fed’s staff, on issues related to normalization and the tools available to implement policy.
Citi: The FOMC Minutes should reflect stronger undertones and sustained improvement. The statement from this meeting reflected big changes, which we think is material for future policy moves.
SocGen: The US only sees the release of FOMC Minutes for the July29-30 meeting, which may be slightly more hawkish than the dovish tone we’ll probably hear from Jackson Hole. But, yesterday’s housing data were encouraging and the fall in yields/rates since the end of July has stopped and may be further reversed, helping the dollar somewhat.
BTMU: The release of the latest FOMC minutes from their 29th -30th July meeting will be in focus today. We do not expect a more detailed discussion of the Fed’s expect strategy until later this year after the Fed has brought an end to QE in the autumn.
Danske: Minutes from the latest Fed meeting could prove interesting. It was the meeting where the Fed made a hawkish twist on inflation and lifted the end-2016 projection from 2.25% to 2.5%. Also, comments after the meeting suggest that the committee turned more hawkish. Fed hawk Richard Fisher said in an interview that the reason he did not dissent was because he saw movement in the committee in his direction.
SEB: We will keep an eye on 1) if the committee becomes more divided in terms of when and how quickly future rate increase will occur. 2) The committee's view of the labor market and wages is highly interesting, 3) Will the fear of low inflation/deflation continue to decease?
Just couple of hours remaining for release of FOMC Meeting Minutes and traders all around the world are eagerly waiting for this news event to better understand future course of action by Fed's as to when they are planning to end QE and raise interest rates.
The following are the expectations for today's FOMC minutes from the July meeting as provided by the economists at Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, and other major banks (Source www.efxnews.com).
BofA: The July FOMC minutes should garner a lot of attention as market participants look for signs of when the Fed may start the hiking cycle. Based on changes to the statement in July, the FOMC is less worried about persistently low inflation, but continues to see "significant" slack in the labor market. We look to the discussion to see how these changes led Fed officials to reassess their views around the timing of lift-off. The June minutes noted that "most" participants thought rates would be significantly below their longer-run level at the end of 2016; for "about half" of those, "the low level of the federal funds rate at that time was associated with inflation well below the Committee's 2 percent objective." We also look for details of the cyclical versus structural debate; of note would be support given to any specific measures to monitor the state of the labor market, and how likely concern about underutilization would keep the Fed from hiking even as the official unemployment rate approaches the NAIRU. Plosser's dissent in favor of dropping the "considerable period" language likely had support from a few sympathetic hawks, but we expect the majority to continue to profess patience before the first rate hike. The discussion about the technical aspects of policy normalization likely continued as well. We see a small chance that a formal update to the June 2011 Exit Strategy Principles will be released as part of the July minutes. More likely, we expect it at the September or October FOMC meeting, and look for July to give some indication of the remaining issues to be resolved. Expect unanimous support for the idea that an updated exit strategy reflects prudent planning and nothing more. The risk is that this discussion, or any other remarks that skew more hawkish — as the minutes regularly do — could trigger a sell-off as the bond and equity markets re-price to an earlier exit. That said, anticipation about Fed Chair Janet Yellen's remarks at Jackson Hole could mute market reaction to the July minutes.
Barclays: We look for the minutes of the July FOMC to contain a more up-to-date discussion on the level of slack and exit principles. The decision to drop the description that the unemployment rate remains elevated in favor of language saying labor resources remain significantly underutilized is likely to have led to a discussion about underutilization. We expect “several” or “some” members to believe slack is being removed faster than previously expected and these members will likely desire a faster transition to rate hikes. We believe the July minutes, like those of the June FOMC meeting, will signal a high degree of consensus about the parameters of the exit strategy. We look for the committee to make these clear as early as the September FOMC meeting.
Credit Suisse: The release of the July 29-30 FOMC minutes is likely to show debate fueled by the faster-improving labor market data. Any clarity on the timing of the first rate hike is probably unlikely at this point, but the minutes may describe continuing discussion related to the exit strategy. We remain biased for USD upside, with EURUSD shorts as our preferred expression.
BNPP: While the minutes are unlikely to send any new policy signal, with the discussion probably dominated by the details of the future policy tightening, the tone of the headlines could read as somewhat hawkish. This favours maintaining or adding to USD longs particularly against the low yielding G10 currencies.
Credit Agricole: The July FOMC minutes will be reviewed for discussion on how recent developments in inflation and employment conditions have influenced Committee members’ views on the timing of the rate lift-off. Some Fed officials, such as Mr. Plosser and likely Mr. Fisher and Ms. George, believe that higher rates may been needed sooner rather than later. Mr. Fisher recently opined that he believed the FOMC was shifting more towards his view. Will that be evident in the minutes of the discussion? We learned a fair amount from the June minutes on the Fed’s evolving exit strategy for the eventual normalization of rates. We will look out for additional analysis, as requested from the Fed’s staff, on issues related to normalization and the tools available to implement policy.
Citi: The FOMC Minutes should reflect stronger undertones and sustained improvement. The statement from this meeting reflected big changes, which we think is material for future policy moves.
SocGen: The US only sees the release of FOMC Minutes for the July29-30 meeting, which may be slightly more hawkish than the dovish tone we’ll probably hear from Jackson Hole. But, yesterday’s housing data were encouraging and the fall in yields/rates since the end of July has stopped and may be further reversed, helping the dollar somewhat.
BTMU: The release of the latest FOMC minutes from their 29th -30th July meeting will be in focus today. We do not expect a more detailed discussion of the Fed’s expect strategy until later this year after the Fed has brought an end to QE in the autumn.
Danske: Minutes from the latest Fed meeting could prove interesting. It was the meeting where the Fed made a hawkish twist on inflation and lifted the end-2016 projection from 2.25% to 2.5%. Also, comments after the meeting suggest that the committee turned more hawkish. Fed hawk Richard Fisher said in an interview that the reason he did not dissent was because he saw movement in the committee in his direction.
SEB: We will keep an eye on 1) if the committee becomes more divided in terms of when and how quickly future rate increase will occur. 2) The committee's view of the labor market and wages is highly interesting, 3) Will the fear of low inflation/deflation continue to decease?
