Minutes of Fed's July 28-29 Meeting

The minutes provided no clues about the Fed's preparedness to raise rates as early as the September meeting. Anticipating a clearer signal but getting none, Treasuries rallied and the dollar fell. While September remains on the table, there is little indication that officials are champing at the tightening bit. Most members believed that the conditions for tightening had not yet been achieved even if they "were approaching that point.

Some members are unconvinced that inflation will return to the 2% target, and are seeking both further progress in labour markets and clearer signs of sustainable economic growth. Clearly, while the Fed seems confident in achieving its employment mandate, it remains unsure about hitting the inflation goal, even though "most" members believe the recent downward pressure is temporary. "Some" officials are concerned about the risk of further inflation-damping moves in the dollar and oil, especially if China's economy slows further. Assuming August payrolls are solid, that should meet the requirement for "some" further improvement in labour markets, the novel change in the July policy statement. However, even this may not be enough to spur rate lift-off.

"One member was willing to tighten policy in July, even he or she was willing to wait for more information before acting. As always, it will come down to the data on both growth and inflation to spur the Fed into action, and we will likely need to see some stability in the dollar and oil prices, too. We still lean toward a September move, but with little conviction", says BMO Economics.