MNI POLICY: July FOMC Minutes Could Give Rates Outlook Clues

By Evan Ryser

     WASHINGTON (MNI) - Minutes of the July Federal Open Market Committee

meeting to be released Wednesday should shed light on the discussion among

officials that led to the first rate cut since 2008 and an early end to the

run-off of the Fed's balance sheet. The meeting took place ahead of the most

recent changes on tariffs on Chinese imports.

     Here are themes to look for:

     --The number of participants who supported a rate cut. While two voting

committee members dissented in July in favor of no change to rates, a clearer

picture of the number of participants who wanted changes to the fed funds rate

will help illuminate the thinking behind Chair Powell's "mid-cycle adjustment."

     --Trade. While the minutes will not refer to President Trump's August trade

announcements, they should offer further clues to the Fed's thinking on trade

generally. Trade tensions have only ratcheted up since Chair Powell noted in his

July 31 press conference: "after simmering early in the year, trade policy

tensions nearly boiled over in May and June, but now appear to have returned to

a simmer."

     --The Fed's balance sheet. The discussion about ending the run-off early

will provide clues about how the committee sees the potential for a decline in

reserves and bank liquidity in the coming months. Also, the minutes will likely

highlight the discussion about what Treasuries to buy, the preferred weighted

average of maturities, and the implications for front-end rates.

     --Details about a standing repo facility. The Fed's June minutes discussed

a standing repo facility as part of the monetary policy implementation framework

but noted operational considerations to be addressed, and some committee members

questioned whether such a facility is needed in an ample-reserves framework. The

probability of a facility increases if it shows up in the July minutes.

     --The counter cyclical capital buffer. Fed Vice Chairman for Supervision

Randal Quarles has hinted in the last few months at changes to the tool that

allows the Fed to require more capital should the economy show signs of

overheating.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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