Investors are starved for information in a new world of 'terse' communication from the central bank
Federal Reserve Chairman Kevin Warsh speaks during his news conference after the Fed's interest-rate committee meeting on July 29.
Starved for information in a new world of limited communication from the Federal Reserve, investors are hoping the minutes of the central bank's July meeting, to be released tomorrow at 2 p.m. Eastern time, will shed light on its thinking about the outlook for interest rates.
At their meeting in July, Federal Reserve officials voted to keep rates steady in a range of 3.5% to 3.75%. Yet three of 12 voting officials dissented and wanted to hike, while Fed Chairman Kevin Warsh raised more questions than answers about the central bank's decision at his postmeeting press conference.
The minutes take on a greater role "in the new world of terse policy statements, cryptic post-confab pressers and less forward guidance proffered," said Michael Gregory, deputy chief economist at BMO Capital Markets, in a note to clients.
Will Compernolle, macro strategist at FHN Financial, said that while the minutes under former Fed Chair Jerome Powell's leadership were often stale, "they could now shed light on some of the internal deliberations left out of Chair Warsh's vague press conference last month."
Alex Pelle, U.S. economist at Mizuho USA, thinks the minutes from the July meeting will show that the three explicit dissents were the "tip of the iceberg" and that there is growing support by the 19 top Fed officials for higher interest rates.
"I think the minutes are going to be more hawkish, in that they signal that there was a significant cohort of officials that could have been open to hiking in July," Pelle said in an interview. "Hawkish" is the market shorthand for central-bank officials focused on raising rates to control inflation.
The minutes of the prior Fed meeting in June reported that a "few" Fed officials saw the need to raise interest rates. Pelle expects that more Fed officials, perhaps a majority, were open to raising rates at the July meeting.
"Each Fed meeting since the start of the year has had a more hawkish cohort," Pelle said.
Markets are desperate to understand how the Warsh Fed will respond to fresh economic data and what it implies for the outlook and the risks to the economy, said Kurt Lewis, a former Fed official and now head of central-bank policy at Piper Sandler.
In the June minutes - the first under Warsh - the Fed laid out the outlook in terms of two scenarios.
In the first, where inflation pressures eased soon, "most" Fed officials said they could hold interest rates steady and eventually ease them. Under the second scenario, if inflation remained elevated due to strong AI-related spending, the conflict in the Middle East and the effects of tariffs, "most" officials said some rate hikes would likely be needed.
"That's actually significant - that's more than half the Fed committee saying we have these scenarios in mind," Lewis said.
"The committee wants evidence that inflation is trending lower - i.e. lower core inflation - to feel comfortable refraining from a rate hike," said Bill Adams, chief economist at Comerica Bank.
The June "dot plot" quarterly chart of Fed officials' interest-rate projections showed how divided policymakers were that month - with nine seeing the need for higher rates this year, and nine others backing no change. Warsh did not participate.
Derek Holt, chief economist at Scotiabank, says he senses there is a "center within the committee that hasn't quite bought the need to move."
Investors have lowered their expectations for a rate hike at the Fed's next meeting in mid-September, after inflation data released after the July meeting came in soft.
The market has lowered the chances of a September rate hike to 59%, down from 82% right after the Fed's July meeting, according to the Atlanta Fed's Market Probability Tracker.
The Fed will be able to review August's jobs report and inflation data before their meeting on Sept. 15-16. Warsh will also speak at the Fed's conference in Jackson Hole, Wyo., next week.
-Greg Robb
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