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July Statement: Eyeing The Guidance Line (2/2)

FED
  • Forward rate guidance: Our Instant Answers ask whether the FOMC changes the forward rate guidance “anticipates that ongoing increases in the target range will be appropriate”. We don’t expect a change in the guidance at this time. There’s a fair number of sell-side analysts who see this changing in a few different ways, and most of those would probably be interpreted in a hawkish fashion:
    • Adding “until there is clear and convincing evidence that inflation pressures are moderating” would arguably raise the bar for slowing down hikes, but only modestly as this has been Powell’s mantra of late anyway.
    • Adding “until rates reach a modestly restrictive level”. This could be read both hawkish and dovish – it cements that the FOMC is set to hike above 3%, but we already knew this from the June Dot Plot and most participants’ communications.
    • More dovish could be adding “some”, as in “some ongoing/further increases”.
  • Dissent? Our Instant Answers will look for any dissenters to the rate decision, and if so, how many in either direction. The most likely dissent would be KC’s George in favour of a 50bp hike as opposed to 75bp, as she did at the June FOMC. Several sell-side analysts see her doing the same in July. While we don’t have any strong conviction on the subject, it’s probably more likely she will toe the line with 75bp this time vs last time – one of the reasons argued for 50bp in June was the start of balance sheet runoff, which has now run for nearly two months. That said, it's not a market-mover either way.
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  • Forward rate guidance: Our Instant Answers ask whether the FOMC changes the forward rate guidance “anticipates that ongoing increases in the target range will be appropriate”. We don’t expect a change in the guidance at this time. There’s a fair number of sell-side analysts who see this changing in a few different ways, and most of those would probably be interpreted in a hawkish fashion:
    • Adding “until there is clear and convincing evidence that inflation pressures are moderating” would arguably raise the bar for slowing down hikes, but only modestly as this has been Powell’s mantra of late anyway.
    • Adding “until rates reach a modestly restrictive level”. This could be read both hawkish and dovish – it cements that the FOMC is set to hike above 3%, but we already knew this from the June Dot Plot and most participants’ communications.
    • More dovish could be adding “some”, as in “some ongoing/further increases”.
  • Dissent? Our Instant Answers will look for any dissenters to the rate decision, and if so, how many in either direction. The most likely dissent would be KC’s George in favour of a 50bp hike as opposed to 75bp, as she did at the June FOMC. Several sell-side analysts see her doing the same in July. While we don’t have any strong conviction on the subject, it’s probably more likely she will toe the line with 75bp this time vs last time – one of the reasons argued for 50bp in June was the start of balance sheet runoff, which has now run for nearly two months. That said, it's not a market-mover either way.