This week’s release of the minutes from the July FOMC meeting was greeted with less enthusiasm than usual. The minutes did not provide any new insights into Fed officials’ thinking and only served to confirm markets’ views of FOMC thinking; a weak employment report from May had raised uncertainty among Fed officials and this, along with the then upcoming UK EU vote had added weight for a decision to delay raising US interest rates. Perhaps the most interesting thing to come from the minutes is the level of disagreement among FOMC members. Some officials thought employment gains in May possibly understated the underlying pace because of one-off events but others saw the numbers as “indicative of a broader slowdown in growth of economic activity.” Westpac described the minutes as being in line with Janet Yellen’s “cautious yet hopeful” narrative.
Ahead of the release, prices in US cash markets were implying no chance of a July rate rise and a small chance of a rate cut. This remained the case after the minutes were made publicly available. This is a far cry from the 51% probability attached to a July rise after the release of May’s minutes. US bond rates went marginally higher on the news. 2 year yields rose 2bps to 0.58% and the 10 year yield rose 1bp to 1.37%. The US dollar was weaker against most other currencies.
The UK vote has moved markets to take a view the Fed is less likely to raise rates and, as the minutes pre-date the vote, the market is somewhat dismissive of a meeting which did not have access to new information which the market deems important. Locally, Westpac said, “There’s not much new here, and given the meeting pre-dates the UK Brexit vote, [it] is somewhat stale.” NAB were almost as excited as Westpac. “…perhaps the most that should be said about them is the ‘uncertainty’ word count reached a new high of 13. They were completely non market-moving.