Markets await the release of the FOMC Meeting Minutes today, as they try to latch onto hints about FED policy ahead of the upcoming FOMC July meeting, on the 25th and 26th.
The July 12 CPI report is also big one ahead of the meeting and will be the main market data aside from the release of the Non-farm payrolls job report which comes out this Friday.
BMO have their take on the upcoming Meeting Minutes as they believe the official communication will help refine expectations around a hike in July and the path toward the 5.75% upper bound implied by the SEP.
They note that the “the balance of risks regarding the hike/no hike debate is far closer to equilibrium than it has been this cycle – and the Minutes will offer clarity on policymakers” views of the weightings associated with each variable influencing the policy outlook.
Also they expect the release will address the absence of evidence pointing to a material impact from the regional banking volatility and emphasize the need for a more measured pace of tightening given we are only at the beginning stages of when we would begin to see the lagged impact of restrictive policy rates as we heard from Powell at the press conference, on Capitol Hill, and in Portugal last week.
Interesting they note that “the current balance of opinions on the Committee, it is notable that even Fed President Goolsbee” who is one of the most dovish voters on the FOMC and a persistent advocate of patience in assessing the effects of tighter policy conditions is unsure about whether or not he will support a hike in July.
With market pricing strongly favouring a 25 bp increase later this month, they point out that “the fact Goolsbee is unable to rule out a move higher in policy rates reinforces the mantra of data dependence, and how broadly unconvinced Powell & Co. are that inflation has demonstrated a sufficient downward trajectory.”
Interesting they also point out that “Policymakers have continually identified services inflation as a facet of the economy that has shown little sign of easing.”
Overall, Investors are going to be looking for some clarifications out of the minutes from the last FOMC meeting. The market and the Fed are at odds about the future of rate hikes. More importantly for how the dollar behaves, there is considerable disagreement about what happens at the September meeting.