Barclays assessment of the Federal Open Market Committee announcement
(in brief, bolding mine)
- The committee stated that "for the time being" it continues to reinvest principal payments from its securities holdings, but "expects to begin implementing its balance sheet normalization program relatively soon." This is a slight change from June when the committee said it expected to begin runoff "this year" and, in our view, indicates the official announcement will come at the September FOMC meeting.
- This is our baseline expectation
- While the use of "soon" might be most appropriate, "relatively soon" gives the committee flexibility to delay any announcement on the balance sheet should the debt ceiling, or other fiscal policy concerns, rattle markets ahead of the September meeting.
inflation
- Whereas it previously said inflation on a 12-month basis was running "somewhat below" the 2 percent target, the committee now says headline and core inflation is running "below" 2 percent.
- We do not read this as a major softening in view, but instead see it as the committee facing facts of where inflation is versus where the Fed wants it to be
- markets are likely to take a dovish signal from this language alteration, even if it's merely descriptive in nature
path of policy
- we still see the Fed as eager to get in another rate hike this year in December
- ... foregoing a rate hike in December would require inflation underperforming the committee's revised expectations
labor markets
- saying that "job gains have been solid" whereas they were described as having moderated in June. This upgrade is likely the result of the June employment report, which showed employment rebounding from May levels
