FOMC: Only 'some' further progress needed for September rate hike

The statement from the July FOMC meeting was very little changed compared with the previous meeting in mid-June but it included an important 'some' in anticipation of the first rate hike: 'The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term'. 

"In our view, the FOMC is not far from the first rate hike and we see the statement as consistent with an FOMC that remains on track to deliver a 25bp rate hike at the next meeting in September", says Danske Bank. 

Nevertheless, the incoming data ahead of the meeting is decisive for the call and for the Fed to deliver the expected rate hike, we need continued progress in the labour market and indications that wage inflation is picking up or/and core inflation is bottoming. Over the next two weeks, the most important data releases will be the July employment report, the Q2 Employment Cost Index and GDP growth. Overall, solid US data in coming months are expected, with a faster improvement in labour market slack than the FOMC projects and a pickup in wage inflation. 

Otherwise, the statement was almost unchanged compared with the previous meeting in mid-June. The forward-looking paragraph was the same as in June and the FOMC continues to describe the risk to the economic outlook as 'nearly balanced'. 

Regarding the description since the last meeting, it was added that 'the labour market continued to improve, with solid job gains and declining unemployment. On balance, a range of labour market indicators suggests that underutilisation of labour resources has diminished since early this year'. The description of inflation was unchanged from June apart from the deletion of 'energy prices appear to have stabilised'. 

The statement had limited market impact and financial markets continue to price roughly 50% probability of a first rate hike in September.