FOMC Minutes: Interest Rates Would Have to Reach ‘Restrictive Sufficiently’ Level to Control Inflation

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have been published the Minutes of the policy decision of the Federal Open Market Committee (FOMC) that took place at the July 26-27 policy meeting and that may shed light on how aggressive they expect to be:

  • All participants in the July 26-27 policy meeting agreed that an interest rate hike of 75 basis points was appropriate.
  • Some members said that the interest rate would have to reach a “restrictive enough” level to control inflation and remain there “for some time”.
  • Participants “agreed” that future rate hikes will depend on the information received, and considered that “at some point” it would be advisable to reduce the pace of increases.
  • Participants agreed that there were “little signs” that inflationary pressures were abating and that the situation would take a long time to resolve.
  • Members “stressed” that slowing demand “would play an important role” in bringing down inflation.
  • Members noted that recent readings on inflation expectations were “consistent” with long-term expectations anchored at 2%.
  • Participants said the strength in the labor market suggests economic activity is stronger than the weak second quarter implies, raising the possibility of an upward revision to GDP.

US futures are pricing in a higher probability of a 50 basis point hike for September after these Minutes, with a probability of around 60%.

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About the FOMC Minutes

Investors look to this release for clues to the political outlook, along with the vote split. A bullish tone is expected to provide a boost to the dollar, while a bearish stance would be seen as dollar negative. Note that the market’s reaction to the FOMC Minutes could be delayed as the media does not have access to the release prior to its original release, unlike the FOMC policy statement.

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The acronym FOMC stands for the Federal Open Market Committee, which holds 8 meetings a year and reviews economic and financial conditions, determines the appropriate direction for monetary policy, and assesses risks to its long-term goals of price stability and sustainable economic growth. . The FOMC Minutes are published by the Federal Reserve Board of Governors and provide a clear guide to future US interest rate policy.

Source: Fx Street

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