I posted up some bank previews of the Federal Open Market Committee meeting this week (statement due Wednesday 26 July 2017)

Long story short is not to expect much, if any, change at all. RBC may have put it best: "the reality is this should be one of the more boring Fed releases in a while"

More previews so far:

This now via Barclays, highlighting the main point of interest:

The main point of interest at the July FOMC meeting is whether or not the committee announces the start time of balance sheet normalization.

  • For much of this year the committee has made greater progress on its balance sheet discussions at FOMC meetings than we expected. Given that the committee has communicated every part of its balance sheet normalization plans except for the start date, we wonder if the committee will take advantage of buoyant financial conditions to announce the start of balance sheet reduction at the July meeting.
  • We continue to forecast this announcement comes in September, but the risk to our call is the committee, once again, achieves consensus faster than we expect.

There are two main reasons we believe a September announcement remains more likely.

  • First, FOMC communications do not point to critical mass in favour of a July announcement. The June minutes indicated that "several" participants preferred to start the process "within a couple of months." We read this as only 3 to 4 participants - short of critical mass since participants may not be voters - arguing for a July announcement. Nearly as many participants have stated that moving "too soon" might give the market the impression that the Fed policy had turned more hawkish. Announcing balance sheet normalization in July opens the door for rate hikes in both September and December and markets may interpret this as inconsistent with gradual normalization.
  • Second, incoming data do not support more rapid normalization than the committee anticipated in June. The rebound in activity in the second quarter has been softer than many expected (although in line with our forecast), labor market improvement has yet to produce convincing evidence of faster wage growth, and 12-month rates of inflation have softened fairly abruptly. This week's data on housing starts and jobless claims, while healthy, do little to alter the fundamental signal.

Altogether, we believe the committee will stay on hold in July. The statement should sound more upbeat on activity and labor markets, particularly following the June employment report, while containing cautionary tones on inflation.

  • We believe the statement could point to an announcement on balance sheet policies in September by saying the committee currently expects to begin implementing a balance sheet normalization program at "an upcoming meeting" or "very soon" as opposed to "this year" as was the case in June.
  • We continue to expect the third rate hike this year in December.