July FOMC minutes suggest rising risk of delay in start of hiking cycle

Since the July FOMC meeting, crude oil has sold off ~15%, the broad trade-weighted dollar has strengthened 1.6%, the Fed's measure of 5y5y breakevens has fallen roughly 15bp, and the y/y average hourly earnings print has surprised to the downside as. 

These are important because the minutes specifically noted that, "some members continued to see downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices" and "several" noted uncertainty about the relationship between labor market slack and inflation. 

Further concerns about China's growth outlook have also resurfaced with the surprise devaluation of the CNY. CNY has depreciated ~3% since the announcement and other Asian currencies have also depreciated against the USD. 

"Given the potential disinflationary effects, this argues for a shallower path of fed funds rate in the US. CNY could weaken by 10% from before the announcement, given the modest economic backdrop (ie, another 7% or so). If other Asian countries follow, that could depress US core inflation by roughly 0.15% over a one-year horizon. This is over and above any pass-through from lower energy prices into core inflation", says Barclays. 

Hence, the date at which core inflation reaches a desired level has likely been pushed back, which may allow the Fed to delay the start of the hiking cycle without having to worry about getting behind the curve on inflation.