Analysts at Nomura explained that the FOMC minutes from the June FOMC meeting do not dissuade us from our Fed calls of a launch of a new balance sheet policy in September and an additional hike in December of the federal funds target range.
“However, the minutes depict a Committee that is more divided than we and the markets expected on the timing of the balance sheet adjustment, despite its consensus on the path of rate hikes. The minutes reported that, “several preferred to announce a start to the process within a couple of months.” However, some other FOMC participants preferred to wait until “later in the year” to assess the outlook for economic activity and inflation. “A couple of months” could imply some participants (not a majority) saw July as an appropriate time, but “later in the year” would point to September or later.”
“Although there still is a slight probability for an announcement in July, given recent Fedspeak, we still think September is most likely. The announcement in September rather than in July would give the Committee additional time to assess its outlook on economic growth and inflation. Further, this analysis appears consistent with the lack of Fedspeak around the possibility of an announcement in July immediately the June meeting. Overall, the minutes today introduce more uncertainty on the balance sheet process, but September remains the most likely announcement date if the economy evolves according to expectations.”