FOMC meeting minutes in focus in the day ahead

After Fed chair Warsh’s shift in stance on forward guidance in response to the central bank’s reaction function, the FOMC meeting minutes will arguably take on more importance than it did before. Warsh didn’t offer much of anything in kicking the can down the road. As such, a closer look at the discussions during the meeting and what key triggers may point to another rate hike will be deeply scrutinised.

As a reminder, we already know that Fed policymakers Logan, Hammack, and Kashkari dissented in favour of a 25 bps rate hike. However, the key question now is how much backing did they actually get (especially from non-voters) among their peers?

A lot will ride on key phrasing of certain views expressed by the Fed, whether it includes “several”, “some”, “a few”, or “many” members sharing that perspective.

Ultimately, we know that the majority view is one that supported a hold on interest rates to at least the next meeting in September. And in all likelihood, that will arguably be the key takeaway from the minutes today. That being reflective of a more wait-and-see and meeting-by-meeting approach.

But still, it doesn’t mean that we should not be prepared for any potential surprises or hints that could lead to a better indication of what the Fed will do next month.

As things stand, Fed funds futures show that the odds of a rate hike in September are at ~31%. So, it is not to say that there is a very convincing narrative that is tiding over markets at the moment. And that is even with some softer data points at the start of August.

But even if there won’t be any firm signals, we can at least try to identify certain triggers in which Fed policymakers are looking at for clues on their threshold to raise rates again next.

Citi notes that:

“The FOMC minutes should largely reinforce what is already known: a divided Committee, including three dissents
in favour of raising rates. That said, the discussion will likely feel somewhat stale given that it predates the recent run of
softer data, which has shifted the policy narrative in a more dovish direction.”

Meanwhile, BofA adds to that in saying:

“The July FOMC minutes will be stale because the soft July jobs and inflation data since the Fed meeting have
considerably reduced market pricing of hikes. Still, we will be looking to get a sense of how many FOMC participants
(besides the three dissenters) wanted a hike or would at least have been willing to go along with one. We’re also
curious about the committee’s thresholds for a September move, though we wouldn’t expect anything too specific on
this front.”