The latest indications about the Federal Reserve’s thinking about how to fight inflation have just landed. It is a key point to be watched by investors. Below is a preview of the minutes.
The Federal Reserve will release its minutes July 27 policy meeting Today at 2 pm Eastern time. Investors may be in for a tight fit.
Economists Andrew Hollenhurst and Veronica Clark warned that the minutes could confirm that financial markets misinterpreted comments made by Federal Reserve Chairman Jerome Powell during his post-meeting press conference. Explained by many economists and investors doves axisor a step in that direction, but Hollenhurst and Clark say that was a misreading.
They add this subsequent comment out of Dovish central bankers, including Chicago Fed President Charles Evans and San Francisco Fed President Mary Daly suggest that the Fed plans to continue tightening regardless of the slowdown in inflation in July. The July rate hike raises the Fed’s short-term policy rate to a range of 2.25% to 2.5%.
The lecturer may provide clarity on one point in particular. Powell said the Fed has reached the so-called neutral rate, where interest rates are neither loose nor constrained. Some economists, including former Treasury Secretary Larry Summers, criticized the suspension for not taking into account the current rate of inflation. The point is that “neutrality” is higher than normal, when inflation is near the 2% target.
Citi economists say that while the minutes may indicate that policy rates have reached the “long-term” neutral range, they expect “several,” if not “many,” and note that the current appropriate policy rate setting is either above neutral or has risen This is neutral due to persistently high inflation.
Investors may also gain insight into the timing of the upcoming slowdown in price increases. Powell was not specific when he suggested rallies would eventually slow, and Hollenhurst and Clark say another 0.75 percentage point increase in September is likely before a half-point rise in November and December.
Finally, Powell only has one question about it Balance sheet shrinkage At his press conference in July. Quantitative tightening, or a partial reversal of quantitative easing, is set to increase after the Federal Reserve bought trillions of dollars in bonds during the pandemic, in September. Some officials have suggested that the Fed will have to sell mortgage-backed securities in order to shrink its balance sheet more quickly. Citi economists say any suggestion in the minutes that this topic will be discussed at the Federal Reserve’s September meeting would be a hard-nosed surprise.
Write to Lisa Beilfuss at [email protected]
“Pop culture junkie. Tv aficionado. Alcohol ninja. Total beer geek. Professional twitter maven.”