First Look at the Federal Open Market Committee July Meeting – See You in September


The statement released following the July meeting of the Federal Open Market Committee (FOMC) sends a strong signal that the June jitters that upended the April willingness have passed; a September federal funds rate increase is back on the table. In the statement, the committee upgraded their assessment of the economy since June. Economic activity was upgraded to “expanding at a moderate rate” from “appears to have picked up.” “Job gains were strong in June following weak growth in May” as opposed to “job gains have diminished” in the June statement. Additionally, “On balance, payrolls and other labor market indicators point to some increase in labor market utilization in recent months” appeared in July. The ongoing healing of the housing sector and the drag from net exports went unmentioned (accentuate the positive), and “Near-term risks to the outlook have diminished.”

Inflation has returned to center stage while Brexit, the drop in oil prices, the rise in the value of the US dollar, and an unexpected slowdown in job gains have faded into the background. All of these remain issues that “the committee continues to closely monitor” but, on balance, “Near-term risks to the outlook have diminished.”

The minutes from the April meeting show the committee had a bias toward taking the next step raising the target range for the federal funds rate at the June meeting if the economy held steady, but a disastrous jobs report for May combined with mounting uncertainty surrounding the outcome of the UK Brexit vote and its implications, and turned the committee back in June. With a strong rebound in June payroll growth (287 thousand), the reality of the long timeframe associated with implementing a UK withdrawal from the European Union (as well as possible reversal), and indications that US economic activity rebounded in the second quarter, the alarm bells have gone quiet. The yield on 10-year US Treasury securities, the safe harbor from uncertainty, have crept up.

By the September FOMC meeting, July and August employment data will be in hand, second quarter GDP and two months of third quarter GDP data will be available, and the longer-term implications of Brexit will be no meaningfully closer (or farther away). If none of these goes terribly wrong the “why not/what are we waiting for” question reemerges.

The question loomed large in April about June. The July statement doesn’t have a lot of “here’s why not” in it for September.


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