U.S. week ahead
FOMC • Wednesday
We expect Kevin Warsh’s second meeting as FOMC Chair to be a punt to September as the Committee awaits more data that either confirm or dispel their hawkish leanings. Since the last FOMC meeting, both employment and inflation have come in cooler than expected, and these factors should tilt the scales toward a policy rate hold. But, it is clear from recent Fed communications that the bar to hike rates is low, and the recent jump in oil prices is once again threatening to drive inflation higher in the months ahead. At least two hawkish dissents are probable, most likely from Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack.
There will be no updated SEP at this meeting, and with Chair Warsh generally adopting a “less is more” mindset to Fed communications, we would be surprised if the shortened statement or press conference yielded any big reveals. We expect Chair Warsh will use the press conference to buy the Committee time ahead of its next meeting on September 16. He likely will note that policy is in a good place to await additional information and that the Committee will deliver on its inflation target. We expect he will point to the ongoing work of the task forces when asked about balance sheet policy, Committee communications, and the outlook for inflation.
We will be listening closely for any hints about where the median of the Committee’s views lie as it relates to what would trigger rate hikes, especially as it relates to the next few inflation reports. Our base case forecast remains that the FOMC will keep the fed funds rate on hold for the foreseeable future as core inflation gradually slows in the months ahead.
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