There are two, also known as non-GAAP four, things to look forward to in today’s FOMC Minutes: inflation, and balance sheet, balance sheet, balance sheet.
At 2pm, the FOMC will release the minutes of the July 25-26 meeting when, as expected, the Fed left its rate unchanged and gave few surprises in its characterization of the outlook. It did surprise many, however, by noting that it expects to begin implementing balance sheet normalization “relatively soon”, language which most had not expected to be introduced until September; this, as UBS notes, is the condition the FOMC set for unwinding its balance sheet, so we now see the Fed announcing its balance sheet normalization policy in September. While there will be no earthshattering revelations, look to the Minutes to shed additional light on the Committee’s debate on this timing and views on the outlook for inflation, which will determine future rate hikes.
Going back to the July 26 statement, the FOMC’s characterization of inflation was uninformative, merely reflecting the softness in the last several prints. In the minutes, some hope to find if the language reflects strongly held views that the softness is transitory, or if there were participants that wanted to raise more alarm about the inflationary outlook, but were outnumbered. Chair Yellen has been explicit that the outlook for inflation will determine the timing of future rate hikes.
Leading up to the meeting, Fed officials were explicit that they believe that inflation weakness is transitory but that they need to see evidence that inflation is rising before hiking again. Further complicating matters, the July CPI print – the fifth miss in a row – did not provide sufficient evidence. As a result, the breadth of inflation views within the Committee should inform the sellside’s calls on the next hike.
This post was published at Zero Hedge on Aug 16, 2017.