What Traders Will Be Looking For In Today’s FOMC Minutes

Today at 2pm the Fed will publish the minutes from its 12-13 June meeting, in which the FOMC hiked the Fed Funds Rate by 25bps, and lifted IOER by 20bps. The statement and updated projections were interpreted as hawkish, while the conference call underscored the Fed’s upbeat view as well as Powell’s reaffirmation to “financial stability”, i.e. preventing further bubbles.

Traders will focus on comments around trade, the neutral rate, the yield curve and whether there has been a clarification in the Fed’s message on future rates hikes and the Fed’s “dots”, which currently anticipate 2 more rates hikes in 2018, another 3 in 2019 and a further 2 in 2020, even as the market currently expect only 3 more rates hike before the Fed is forced to tighten.

What Traders Will Be Looking For In Today's FOMC Minutes

Here is a detailed preview of what to expect from RanSquawk

RATES: The Federal Funds Rate target was lifted by 25bps to 1.75-2.00%, as was expected. The IOER (interest on excess reserves) was lifted by 20bps, not the usual 25bps hike. The updated staff projections added a rate hike to the 2018 profile, now pencilling in a total of four hikes this year (previously three), after one participant lifted his/her forecast (it is unknown whether that participant was a voter on not). The hike trajectory now sees four rates rises in 2018, three in 2019, and one in 2020 – eight in total over the forecast horizon, which is still the same number of hikes it projected in March. Traders will parse the minutes for comments on the neutral rate, with analysts expecting the minutes to show a wide range of views; similarly, the FOMC’s view on the flattening yield curve will also garner attention.

STATEMENT: There were significant changes to the statement, with the Committee repeating its view that monetary policy remains accommodative, and also upgraded its language on the economy; economic activity is rising at a ‘solid’ rate, previously said growth was ‘moderate’. It also dropped its reference from previous statements that it expected rates to be below neutral for ‘some time’.

TRADE: Powell noted Fed contacts had reported concerns on trade policy, though he personally is not seeing any evidence of it in the economic data.

ECONOMIC PROJECTIONS: The FOMC revised its inflation forecasts higher, while trimming its unemployment rate forecasts. In his post-meeting press conference, Fed chair Powell was upbeat about the US economy, suggesting it was in ‘good shape’. said he’d be concerned if inflation was persistently above or below 2%, though his views haven’t changed much since the March meeting. Powell believes that inflation will be pushed above the 2% target after the oil price rise recently, but sees it as transitory. On the inflation target itself, Powell said the FOMC is strongly committed to the 2% price goal, and the barriers to changing that are very high. Powell said there was wide uncertainty around NAIRU and the neutral rate, and the Fed will keep an open mind, and is monitor incoming data.
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