What To Expect From FOMC Minutes? - Views From 15 Major Banks

The following are the expectations for today's FOMC minutes from the June meeting as provided by the economists at 15 major banks along with some thoughts on the USD into the event as provided by the FX strategists at these banks.

Goldman: Despite the upbeat growth picture, we expect a later-than-consensus Fed liftoff. Our interpretation of the June “dot plot” and FOMC press conference was that December, not September, is now the baseline, and we think the information received since the meeting has been broadly consistent with that baseline.

Morgan Stanley: Today investors will brace for the FOMC minutes. Any indication suggesting international conditions slowing down the Fed in preparing for higher rates should see USDJPY breaking lower, taking other JPY crosses with it. JPY longs against AUD and KRW sit best with the current scenario of weakening commodity prices and weak Asian economic performance.

BNPP: The release of the minutes to the June FOMC meeting Wednesday may provide a timely reminder that the Fed is moving towards tightening, even though the meeting predated the June jobs data and the latest Greece news. Our economists point out that five FOMC members arrived at the June meeting anticipating that three rate hikes would be appropriate by the end of 2015—their optimistic views on the outlook and inclination to begin hiking at least by September, if not earlier, should be reflected in the minutes. San Francisco Fed President Williams, who has been an advocate of rate hikes this year, will also speak, and it will be important to see if the latest news has impacted his thinking. We remain patiently bullish on the USD, even though it now seems as if we will need to wait a few more months for the big adjustment higher in US front-end rates we had been anticipating this month.

Credit Suisse: The June 17 FOMC policy statement kept the door open for a rate hike later this year, without providing more explicit guidance about the timing of lift-off. It would be interesting if the minutes of the June FOMC meeting provided more clarity on the likely date of the Fed's first rate hike, but the risk is that they will not. The minutes may help markets glean the motivation behind declines in Fed officials' preferences (a.k.a. "dots") for the fed funds rate target at the end of 2015-2017 and in the longer run. At the same time as the 2 p.m. ET minutes release, San Francisco Fed President Williams (voter, dove) is scheduled to speak on the economic outlook. We continue to prefer USD longs versus the G10 commodity block (AUD, NZD and CAD), as easing expectations due to falling commodity prices build.

Barclays: We look to the minutes of the June FOMC meeting to provide context about divergent views on the outlook within the committee. Chair Yellen’s lack of confidence in the outlook during the press conference stands in stark contrast to the contents of the FOMC statement and projections, the latter of which were largely in line with our expectations and support at least one rate hike this year. We especially look to participants’ views on the strength of private consumption, estimates of remaining labor market slack, and what data flow would constitute “decisive” evidence of economic momentum. We believe several participants shifted their dots from September to December given the bounce in labor force participation and stable unemployment rate during the intermeeting period. This allowed participants to revise higher their estimate for Q4 unemployment and, in turn, push the first rate hike out by two meetings.

BofA Merrill: The June FOMC statement had a modest upgrade to the discussion of the economic outlook after the disappointing 1Q, but the markets largely focused on the more dovish decline in the dot plot. As a result, the key thing to look for in the June minutes will be the debate around the pace of hikes for this year: will the majority appear to lean toward two or just one hike? In light of the Fed’s professed data-dependent approach to policy, the discussion around the forecasts and whether they could satisfy the conditions for liftoff in September will also receive significant attention – although we don’t expect many specifics in the minutes. We do suspect the bar for the first rate hike is not all that high, and the minutes historically have had a tendency to sound more hawkish than the meeting itself (albeit less so recently). Specifically in the minutes, what factors led several FOMC participants to shift to fewer implied hikes for 2015 will be noteworthy. Potential explanations include the weak activity data to start the year, the continued low inflation rate, and global risks. How each of these is assessed will give additional information regarding what the FOMC needs to see in order to hike. We expect some more concern about persistently low inflation and global risks (notably Greece) than in prior meetings this year – but perhaps still a minority of participants. A second key question that is likely to be discussed in the minutes will be how the FOMC plans to communicate the change in policy. The prior few minutes suggested that the Committee is reluctant to give an explicit signal in the statement language, and instead planned to focus on communicating how the data have evolved relative to the FOMC’s expectations. In this case, more emphasis should be put on upcoming speeches by Fed officials – including Chair Yellen’s Humphrey-Hawkins testimony scheduled for July 15 and 16, two weeks before the July 28-29 FOMC meeting. Based on Yellen’s press conference remarks, no further details about the Fed’s reinvestment plans should be revealed in the minutes.

SEB: FOMC keeping all doors open. Ahead of the FOMC meeting in June, a majority of members appeared to see a first rate hike in September as the main option for the Fed. The Greek crisis and dollar strength suggest that the probability of a delayed start for interest rate hikes has increased, although it is uncertain to what extent it will be reflected already in the June Minutes. The IMF reiterated yesterday its recommendation that the US policy rate should not be raised before next year.

SocGen: The final news today will come from the FOMC Minutes this evening. These already feel outdated, after the slightly dovish tone of the announcement and press conference, and after the events in Greece and China that have soured risk sentiment. However, given where sentiment is, any hawkish undertones will just add fuel to the risk-off fire and to the dollar.

NAB: The minutes should explain the changes in the dot points, but mostly is expected to reiterate the line that the Fed expect to raise interest rates this year, but they are very data dependent. We get more from the Fed, with the Fed’s Williams speaking on the outlook for the economy. He is a voter and known moderate hawk.

Nordea: The FOMC minutes are expected to signal that the Fed sees one or two rate hikes later this year. However, the minutes are unlikely to clearly indicate when the FOMC expects lift-off in rates. In case of no major spill-over from the Greek situation to financial markets, US economic data will be decisive for the Fed. Especially the two remaining job reports and the 31 July Q2 employment cost index (ECI) ahead of the September FOMC meeting. Although it is probably a close call between September and December, we continue to expect lift-off in Fed rates in September.

Dankse: In the US minutes from the 16-17 June meeting will be released this evening. However, it will probably more interesting to hear what Fed’s Williams has to say about the possible impact from the recent uncertainty about US monetary policy in his speech this evening.

Credit Agricole: Beyond Greece the key release today will be the FOMC Minutes from their June 16-17 meeting. Given an already meaningful shift since last week’s slightly softer June NFP and Greek referendum announcement, it would take a significant shift in dialogue to push-back Fed tightening further. More likely is that the Fed’s cautiously optimistic dialogue is maintained producing something of a retracement higher in short-term US yields. This retracement could provide beneficial to USD but only at the margin given more important risk aversion factors currently at play. Further ahead, economic evidence should continue to support a stronger US recovery and hence the need for higher rates - though arguably not at the heady pace previously expected by FOMC officials. Reflection this outlook, DXY should push-through its May high in the coming week.

LIoyds: Coming in the aftermath of a meeting with a press conference and published economic projections, these are of more limited incremental value. Nevertheless, alongside the slew of upcoming Fed speakers - including Williams later this evening and Yellen on Friday - the impact of Grexit concerns through the FOMC’s lens of ‘financial and international developments’ will be of particular interest.

BTMU: Today we get the minutes from the FOMC meeting on 16th -17th June which may reveal in greater detail the concerns of FOMC members at the time of the meeting. Still, circumstances have worsened notably since that meeting took place and hence any positive sentiment on the outlook for growth is unlikely to garner as much attention in the markets as expressions of concern over growth.

CIBC: The minutes of the June 16-17th FOMC meeting will be released on Wednesday. We’ll eye the members’ assessment of the Q1 disappointment and their rationale for lowering their dots. Given the weakness in wage growth observed this week, any discussions on the topic will be important. Fed Chair Janet Yellen will close out the week with a speech mid-day on Friday. Nevertheless, events in Greece will continue to dominate air time in the coming week.

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