The FOMC minutes were released early and dealt a blow to the greenback on the lack of conviction for a rate hike.
But could we have expected something really hawkish? The team at CIBC provides some answers:
Here is their view, courtesy of eFXnews:
The Fed couldn’t be THAT hawkish in July, or they would have raised rates then and there, but the minutes of that meeting certainly were in line with a central bank that was nearing an inflection point, with “most” saying “conditions were approaching that point.” “Several” felt that we were already at or very close to full employment. Only “some” were described as feeling that there was not enough confidence that growth would be sufficient to pull inflation back to 2%, citing international developments (which have since darkened a bit) or concerns about the zero lower bound if new shocks hit the economy. On the economy itself, the discussion had an “on the one hand, on the other hand” flavor to it, with plusses and minuses mentioned on most fronts at home and abroad. The catch is that the committee placed an emphasis on needing “more evidence” that the economy “had firmed enough” to support a rise in inflation over time.
Doves will point out that this meeting came before the Chinese devaluation, which while not monumental, has raised more questions about the health of one key player in the global economy, as well as the further downturn in oil that will weigh on near-term inflation measures.
We’re sticking with our call for a September rate hike, but the gap between the minutes and their release, as well as some of the question marks raised in the meeting on inflation, will give the doves a bit of comfort today.
Avery Shenfeld, CIBC WM Economics
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