FOMC minutes to show the Fed getting more “confident”

June FOMC meeting states that the hurdle for a lift-off in rates is quite low, but the pace will be very gradual. The FOMC's 1.9% growth forecast for this year implies average growth of 2.5% during Q2-Q4 and according to the "dots" this is good enough for at least one rate hike. 

While the FOMC appears to be ready to lift rates relatively soon, may be for September, the Committee is collectively trying to shift market focus to the pace of tightening and promising that it will be very gradual. 

This message is expected to be reinforced in the FOMC minutes, with the caveat that "gradual" is not the same as the "measured" pace of tightening during the 2004-2006 tightening cycle. Yellen communicated this during the press conference, insisting the rates are not on a pre-set course and the path will be adjusted as the data evolves. 

The speed of the tightening cycle might be being tied to the labor market and inflation. Things to look for in the FOMC minutes include any additional color on the timing of the lift-off and any discussion on how to communicate ahead of the first rate move. On the first issue, any precise commitment is not expected, but it would be helpful to see whether the one-hikercamp which includes dots #3 through #7 assumes the first rate hike in December or before.

"The unemployment rate will eventually drop to about 4.3% by the end of this cycle, rather than leveling off at 5.0% as suggested by the FOMC's projections. Alongside this projected unemployment drop we also envision an acceleration in hourly wage growth to 2.6% by the end of this year and 3.0% by the end of 2016. It is not clear how sensitive the rate path will be to such developments, but the risks around the Fed's "dot plot" to be skewed to the upside", says Societe Generale.

A September hike followed by a six months pause, which would allow the market to slowly adjust to the new reality of a tightening cycle. Regarding the communication ahead of the lift-off, the April minutes already included a discussion on the issue but most participants seemed uncomfortable with the idea of pre-annouoncing the liftoff.

Lastly, any further insight on the technical aspects of the lift-off, specifically the size of the overnight reverse repo facility. Chair Yellen indicated at the 17 June press conference that the FOMC plans to begin with a relatively large facility at lift-off, but plans to scale it back relatively quickly.