FOMC: All eyes on announcement of balance sheet normalization - SocGen

The FOMC Meeting take centre stage today, and while analysts at Societe Generale expect few major changes, all eyes will be on whether the Fed announces the start of its balance sheet normalization policy.

Key Quotes

“Focus of FOMC on balance sheet announcement

• The highlight of the meeting will be whether or not the Fed decides to announce a start date for balance sheet normalization. We lean towards the Fed making the announcement at the September meeting, with an October start date, as it will give Chair Yellen a chance to explain the Fed’s reasoning at her press conference, something that will not accompany the July meeting. In addition, the June FOMC Minutes revealed an ongoing debate about the timing of the announcement, with some officials preferring to wait a couple of months. Thus, we suspect that the Fed will opt to alter the language in the paragraph on the balance sheet, noting that it will begin “relatively soon,” thus confirming market expectations for a September announcement.” 

“In terms of other changes to the statement, we look for only minor tweaks. For example, the sentence on job gains is likely to be upgraded modestly (previously described as having “moderated”) in the wake of the strong June jobs report, while the unemployment rate language could be altered slightly to note that it has been little changed in recent months. Although there is great anticipation on changes to the inflation language, we suspect that the Fed may opt to keep it unchanged for now.”