Could FOMC Minutes point to resize Fed’s future rate hikes?

The US central bank’s officials tend to keep hiking interest rates until high inflation is under control, and the release on Wednesday’s FOMC minutes from their July 26-27 policy meeting could highlight how aggressive they expect to be.

Data since the Fed’s last policy meeting showed annual consumer inflation eased in July to 8.5% from 9.1% in the prior month, a fact that would explain a smaller 50-basis-point rate increase next month according to observers.

The minutes, which are due to be published at 2 p.m. EDT (1800 GMT), is the first after positive inflation-related data and therefore; could help provide clarifications of the reasons that would prompt Fed officials to decide a third straight 75-basis-point rate hike at their September 20-21 meeting, and what might guide them to limit upcoming increases to half-percentage-point increments.


But other data released on Wednesday showed why that remains an open question. Core US retail sales, which correspond most closely with the consumer spending component of gross domestic product, were stronger than expected in July.

That data, along with the shock-value headline that inflation had passed the 10% mark in the United Kingdom, seemed to prompt investors in futures tied to the Fed’s target policy interest rate to shift bets in favor of a 75-basis-point rate hike next month. read more

Chicago Fed index of credit, leverage and risk metrics showed continued easing. That poses a dilemma for policymakers who feel that tighter financial conditions are needed to curb inflation, which is running at a four-decade high and is, by the Fed’s preferred measure, more than three times the central bank’s 2% target. Job and wage growth in July exceeded expectations, and a recent stock market rally may show an economy still too “hot” for the Fed’s comfort.