FOMC minutes preview - Nomura

Analysts at Nomura offered their preview for the FOMC minutes coming up in the US session tonight.

Key Quotes:

"The statement from the 25-26 July FOMC meeting all but explicitly stated “September” for the announcement of balance sheet roll off. Since then, a number of FOMC members have publicly commented on the appropriateness of an announcement next month while stressing their expectations of a very smooth and predictable process of the balance sheet reduction. 

In particular, Philadelphia Fed President Patrick Harker emphasized that the process should be “predictable, slow, and as boring as possible,” in his recent remarks. While balance sheet communication with respect to September was firmly addressed, the outlook for inflation was less clear. Compared to the June FOMC statement, the language on inflation in the one in July changed very little, while acknowledging that prices are “running below 2 percent,” instead of repeating “running somewhat below 2 percent.” The statement did not give additional "color on this subtle change in language. It is possible that there may have been a considerable amount of discussion during the meeting. 

We think the minutes from this meeting may shed further light on this debate. As market consensus has firmed around September for a balance sheet announcement, market uncertainty around the FOMC now rests on the timing of the next rate hike. In that regard, changes in specific language with respect to the number of participants that attribute low prices to transitory factors will deserve some attention. In the minutes from the June meeting, it was noted that “[m]ost participants viewed the recent softness in these price data as largely reflecting idiosyncratic factors.” Chair Yellen has previously referenced transitory declines in wireless telecom and prescription drug prices. 

However, some of the recent weakness extends beyond those two categories, apparel in particular, implying that more members may now see the weakness as attributable to more than transitory factors. We still expect the next rate hike in December of this year but will closely watch for any signals within the minutes about how firm this forecast should be."