The Federal Reserve (Fed) will release the minutes of its July meeting on the afternoon of the 17th, and investors can prepare for the “hawk” position of Fed policymakers to surprise the market.
As Barron reports, Citi economists Andrew Hollenhorst and Veronica Clarke reminded investors that minutes of the July FOMC meeting could prove financial markets misunderstood the Fed chair.ballSpeech at the post-conference press conference. At the time, many economists and investors were interpreting Ball’s words as “turning the dove” or a step in that direction, but Hollenhurst and Clark believed that interpretation was incorrect.
Two Citi economists noted that “dovish” Fed officials, including Chicago Fed President Charles Evans and San Francisco Fed Chair Mary Daly, later came forward to say that, despite a moderation in inflation in July, the Fed was still mulling monetary policy. intends to continue to strengthen. julyrate increaseFederal funding of the Fed after 3 yards (0.75 percent)Rate of interestTarget range increased to 2.25%-2.5%.
Explain neutral interest rate levels
The minutes of the July meeting could be particularly clear. Powell said at the time what the Fed called the “neutral rate”—a rate that neither stimulates nor hinders economic growth. As the remarks surfaced, he immediately criticized some economists. For example, former US Treasury Secretary Larry Summers accused Powell of not taking into account the current inflation rate. The point is, the “neutral” rate is higher than usual today, after all, inflation was close to the 2% target, and is now largely headed for it.
Two Citi economists said the minutes may have noted that the Fed’s policy rate has reached its “long-term” neutral rate limit, but that they should be considered “several” or even “multiple” of the current policy rate. References expected. It is better to set it above the “neutral” level, or the “neutral” level has moved upwards as inflation continues to climb.
time to slow down the rate increase
Investors may be able to get a glimpse of the Fed’s timing for slowing the pace of future interest rate hikes from the minutes of the meeting. When Powell said “rate hikes will eventually slow down,” he didn’t specify when, but Hollenhurst and Clarke believe the Fed would rate rates every 3 yards in September and again in November and December. can increase. 2 yards.
Do you intend to speed up the reduction of the table?
Finally, the Fed is due to extend its monthly quantitative tightening (QT) scale in September. Some officials have said that if the Fed will have to sell mortgage-backed securities (MBS) to accelerate the pace of shrinking its balance sheet (“shrinking”). If the minutes of the July meeting suggested that the subject be discussed at the September meeting, it would also show the “eagle” of Fed policymakers as a surprise.