Not much new in the FOMC minutes from the June meeting.
Most interestingly, the minutes revealed that 'several preferred to announce a start to the process within a couple of months' supporting our view that the Fed can make an announcement in September and start actual run-off in Q4.
We still think there is a risk is that the Fed is too optimistic about how much it can shrink the balance sheet, although we still do not know what level of the balance sheet it aims at.
With respect to inflation, the minutes say low inflation is likely 'transitory' and the Fed still has faith in the Phillips curve. The problem is that tightness of the labour market is not the only factor determining wage growth and inflation expectations have dropped.
We still expect the Fed to hike one more time this year in December due to the focus on the unemployment rate and easy financial conditions. That said, four FOMC members signalled no further hikes this year in the updated projections in connection with the June meeting. Risk is the Fed continues to undershoot its 2% inflation target.
To read the entire report Please click on the pdf File Below: