The minutes of the 28-29 July FOMC meeting, which was released early due to a mistake by Bloomberg, showed an FOMC which remained undetermined on the timing of the first rate hike. Arguing against a September rate hike is the move by the PBoC to disconnect the CNY from the USD and continued modest core and wage inflation. Speaking for a move in September is the continued solid employment gains, healthy consumer spending and progress in the housing market. The July FOMC minutes did not give us the answer, but it did suggest that the decision will be dependent on improvement in economic data in a broad sense and, in particular, labour market progress. Hence, we do not see inflation data as the most important trigger for the Fed.
For now we stick to our view that the FOMC will move in September, although it is a close call and there are clear risks of a later hike (October or December). We also believe that a September rate hike will be accompanied by a strong emphasis from the FOMC that the pace of rate hikes is expected to be gradual although still data dependent.
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