Statement: Difficult To See Forward Guidance Changing (2/2)

Apart from the expected 25bp raise in the Funds rate to 5-1/4 to 5-1/2 percent, and removing language regarding “holding the target range steady”, the forward guidance will again be the market focus of the statement - see June paragraph image below.

• To recap the recent subtle changes: March’s meeting statement changed the rate guidance meetings from saying "ongoing increases” "will" be appropriate, to merely that "some additional policy firming may" be appropriate. May’s statement changed “The committee anticipates that some additional policy firming may be appropriate” to “In determining the extent to which additional policy firming may be appropriate…”. And June’s statement changed “In determining the extent to which additional policy firming may be appropriate…” to “In determining the extent of additional policy firming that may be appropriate…”, a subtle shift that suggested further hikes were less conditional than they had previously been, in line with the 50bp hikes in the new Dot Plot.
• Given that the last three meetings saw alterations, it’s tempting to see another tweak in July. But it’s difficult to see how or why the FOMC would adjust this again.
• Some Fed observers suggest it’s possible the language could be tweaked dovishly, reverting to “the extent to which” – re-introducing more conditionality – or adding more “meeting-by-meeting” type language, for instance suggesting that both the extent and timing of further tightening is in question.
• It’s also possible the Fed adds language to suggest it thinks rates are already in sufficiently restrictive territory, or makes reference the need to keep rates in sufficiently restrictive territory for some time once the hikes are concluded. But such changes are only likely to be added only once the Fed is confident it’s done hiking.