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The Two Main Things To Look For In Today's FOMC Minutes

With less than two hours until the Fed releases the minutes to the June FOMC meeting which may shed some more light on how Fed officials view the simultaneous declines in unemployment and inflation,  there are two key things markets will focus on:

  1. Concern on inflation – As several speakers have sounded less hawkish on prices than Yellen did, a more dovish language on CPI isn't new news.
  2. Balance sheet timing – Consensus here is for a pause when balance sheet reinvestment policy changes. However, as Citi's Fraser King writes, there is no specific reason why the Fed would tie themselves to such a schedule, and expects additional clarity from the minutes may clarify.

Indeed, as Stifel's chief economist LIndsay Piegza writes, "the $4.5 trillion question on everyone's mind remains when will the Fed start shrinking its balance sheet? Recall, the June rate announcement included details of the expected caps and tiered reduction patterns Fed officials expect to implement, but the timeline for said reduction was not specified."

As the WSJ adds, launching the balance-sheet plan in September also would afford Chairwoman Janet Yellen an opportunity to initiate it well ahead of any potential leadership transition. Her term as chair expires in February, and President Donald Trump hasn’t indicated whether he would nominate her to a second term or replace her.

While a final decision on the next Fed moves hasn’t been made, officials will have several opportunities in coming weeks to clarify their thinking. The central bank releases minutes of the June meeting on Wednesday, and Ms. Yellen testifies before Congress next week. Officials will also gather in Jackson Hole, Wyo., at the end of August for an annual monetary-policy conference that will provide ample opportunities for them to offer further guidance.

In this context, any dovish aspects that emerge, should be “well understood/priced already” according to Citi which adds that a dip is perhaps possible "if we see concerns on inflation or flat PC – but it should be a dip to fade." King also likes the Dollar higher against Asia FX and AUD going into the G20 summit this weekend.

Also don't roget that coming up later in the week we get speeches by Fed Chair Yellen & Fed’s Fischer. On Friday we also get NFPs and AHE. None of these events should be major risk factors but given pricing, a bigger move could result from good data/hawkish language.