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Fed Minutes Leave Analysts and Market Participants Wanting More

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This afternoon at 2 PM EDT the Federal Reserve released the minutes from the July FOMC meeting which was held on the 30th and 31st of last month. From the perspective of analysts and market participants they were looking for any hint or indication of the current plans by the Federal Reserve to initiate more interest rate cuts later this year.

Because the Fed does not include the “dot plot “on every FOMC meeting statement, market participants were uncertain as to future rate cuts. Analysts also were looking for any information as to whether or not the Fed members had created a preset course for their monetary policy. In fact, the minutes released today indicated just the opposite as members of the Federal Reserve said “it was important to maintain optionality in setting policy”. The underlying explanation for last month’s rate cuts was that it was a “mid cycle adjustment” which implies that this rate cut was not the beginning of a major quantitative easing program.

The next FOMC meeting will commence on September 18, and currently the CME’s FedWatch tool is predicting that there is a 98.1% probability that the Federal Reserve will initiate another interest rate cut of 25-basis points and announce that at the conclusion of the September meeting. This tool is also indicating a 1.9% probability that no rate cut will be announced and implemented at the end of the September meeting.

Yesterday (August 20) the FedWatch tool was predicting that there was a1.9% probability that the September meeting would result in a 50-basis point rate cut, and a 0% probability that Fed funds rates would remain unchanged.

There is no doubt that the minutes released today left many market participants and analysts wanting for more information and clarity as to the future direction and number of rate cuts the Federal Reserve will initiate this year and next. However, they will not need to wait long as on Friday Fed Chairman Jerome Powell will present his most current assessment and views in the opening speech at the Jackson Hole symposium.

According to many analysts Chairman Powell will once again need to walk a tight rope as he attempts to balance his statements.

According to Mohamed A. El-Erian Bloomberg opinion columnist “on the one hand, there is a good case for Powell taking on more forcefully markets and pressure coming from the White House. After all, the Fed alone cannot deliver the outcomes that both are ultimately looking for: sustainably higher economic growth and genuine financial stability. For that, the central bank needs to hand off the primary policymaking … On the other hand, taking that stance risks fueling immediate market instability and aggravating White House anger. Which implies that on Friday, Powell should instead say little or nothing about the prospects for monetary policy.”

Friday’s opening speech at the Jackson Hole symposium by Chairman Powell will certainly be one of the most important events this week, and as such could most certainly have a profound impact on the financial markets.

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Wishing you as always, good trading,

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