FOMC leaves rates unchanged with three hawkish dissents, Bank of Canada minutes a slightly hawkish lean
The FOMC has left rates unchanged as we expected, in a 9-3 vote, with three hawkish dissents for a 25bps tightening, from Cleveland Fed’s Hammack, Dallas Fed’s Logan and Minneapolis Fed’s Kashkari. We had expected only the first two of the three dissents, but Kashkari’s is not a major shock.
Apart from three rather than zero dissenters, the statement was little changed from June’s, suggesting the economy is still seen as in a similar position, though continuing rather than reaffirming a policy of maintaining ample reserves in the banking system may be a little less strong. Softer than expected June non-farm payroll and CPI data does not appear to have changed much. Tightening will surely continue to be debated at upcoming meetings, with decisions dependent on incoming data and global developments, particularly in the oil price. Risks of tightening are growing but it does not yet appear to be a done deal.
Thirty minutes before the Fed decision the bank of Canada released minutes from its July 15 meeting. We see the minutes as having a slightly hawkish leaning. Upside risks from oil prices and the Middle East and downside risks from US trade policy were both discussed, but only for the firmer was the possibility of a monetary policy repose being necessary explicitly considered. However the BoC does not appear in a hurry to move. There was confidence about a pick-up in Q2 GDP but a range of views on whether it as sustainable. So far little evidence of spillover of oil prices into broader inflation was seen, but the longer prices remained elevated, a bigger the risk of broader inflation was seen.