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July 2022 FOMC Minutes Update

The FOMC meeting minutes for July 2022 were released.

There were no surprises. The Fed Funds rate outlook seems pretty much intact for the year. There is nothing to indicate that the Fed will slow or increase in any big way the pace of hikes against what the market is already pricing in. They already anticipated inflation and growth to moderate in the coming quarters in line with the markets. And inflation did indeed come off as we now know after the July numbers were released this month. In fact, it came down more than expected. Growth, on the other hand, seemed to be holding up more than expected as evidenced by the latest retail sales figures. While certain sectors are seeing a slowdown in hiring, the overall labor market based on the latest payroll numbers still seems to be going strong.

For the Sep meeting, most members expected a 50bps hike. And given the lower-than-expected July inflation print, that tilted the Fed Funds rate expectations more convincingly towards 50bps. At the moment, 64.5% of the market participants are expecting 50bps as compared with 35.5% for 75bps. But as far as the year-end rate is concerned, the expected rate is 3.7%. That means probability-wise, we might be looking at a 50bps for Sep, 50bps for Nov and finally a 25bps for Dec.

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