Citi Preview: Debating Forward Guidance

Citi FOMC Preview: Most interesting at this meeting is discussion around
forward guidance, which will likely be delivered in September.
Fwd Guidance: Broad-based support on FOMC for formal outcome-based
guidance. The interesting debate at this meeting, likely most evident in
minutes released Aug 19, will be the exact form and wording of that guidance.

- Best guess: FOMC leans toward phrasing that indicates some comfort with
overshooting 2% target – but does not explicitly guarantee an overshoot.

- More dovish: committing to overshoot for a period of time.

- More hawkish: simply stating hikes will not commence until inflation is on
clear path to being at-target.

- Any fwd guidance likely to be consistent with far-forward pricing of likely
first hike, which means market reaction will be muted.

- May also have unemployment component, but choosing appropriate threshold
difficult and possibly contentious given significant uncertainty over both the
path of employment and labor force participation.