Minutes of Fed's June Policy Meeting

While the June policy statement didn't break much new ground on the Fed's future actions, the minutes to the meeting were more revealing, and suggest that recent global developments could stay its tightening hand this year.

"Many" officials sought more proof that the U.S. economy was strengthening before hiking rates, and "many" were worried that Greece's woes could infect U.S. markets.

"Most" members wanted to see further progress in labour markets, and a "number" warned against prematurely raising rates (taking a cue from the IMF). Officials also cited concerns about slowing growth in China and softer U.S. consumer spending as "reasons to be cautious in assessing the outlook".

That said, officials still seem willing to initiate tightening this year (after a nine-year hiatus) given expected continued growth and falling joblessness, with "some" members expecting the economy to run out of slack by year-end and "several" believing it was already close to full employment, noted BMO Economics.

Nonetheless, the Fed has set a fairly high bar for tightening by seeking three conditions sustained stronger growth, continued progress in labour markets, and confidence that inflation will eventually return to the target.

The minutes suggest the pole to clear this bar is still rather short, especially in light of recent global developments that risk pushing back the countdown for a September rate lift-off. Since the June meeting, much has changed on the world stage, none of it particularly good for the U.S. economy.

Greece is teetering precariously close to the Grexit cliff, China's stock market has shed a third of its value, and the IMF is wagging a finger at the Fed saying a rate hike could upset the global financial apple cart. On the plus side, U.S. consumer spending has picked up and the housing market recovery is in full swing.

Chair Yellen has to say about all this on Friday, and whether she takes a step back from an earlier tendency to raise rates this year. Speaking this afternoon, San Francisco's Williams repeated earlier comments that a rate hike is still on the table, though not until he is more confident in the outlook for growth and inflation.

EUR/USD rose to 1.1073 from 1.1048; USD/JPY is down a dozen pips and cable is up to 1.5363 from 1.5337 shortly after FOMC minutes.

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