Citi: There is not much reason for the Fed to give hawkish steer via Minutes, as their FOMC caution was vindicated by subsequent events. Since FOMC we have had Yellen testimony (pretty dovish), Brexit and a couple of dovish comments from other FOMC members. Also the surprise of the last FOMC was the new, much more dovish configuration of dots so they are more likely to use the Minutes to explain the shift than unwind it.
Morgan Stanley: Fed minutes from its June meeting will be due on Wednesday. The Fed should err on the side of caution, particularly with its views ahead of the Brexit vote and the weak 38k payrolls. Last year, US NFP rose by a healthy 229k monthly average. Some hiring slowdown should be expected as the labour market hits full employment, but for the market to regain confidence that the US economy is in good shape, this Friday’s NFP may have to beat the consensus 166k while simultaneously showing that wage growth has accelerated further from its last 2.5% reading.
BNPP: Today sees the release of the June FOMC minutes and, while the meeting took place before the UK referendum, we expect the minutes to highlight a range of concerns and uncertainties keeping the Committee in check, consistent with yesterday’s speech by New York Fed President Dudley, who noted a weaker than expected investment outlook. All of this does not bode well for the USD generally, but with political concerns continuing to weigh on the GBP and, to a lesser extent, the EUR, and with a fragile risk environment challenging the EM and commodity exporter currencies, the dollar is unlikely to fall broadly.
TD: The dynamics underpinning Fed policy have been overtaken by the post-Brexit events, making the June FOMC minutes somewhat stale. Nevertheless, we expect the tone to be dovish, reflecting a greater awareness among Fed officials about the negative feedback loop from global events. We also look for an increasing acknowledgement of the persistence of the structural headwinds constraining growth, which has underpinned the dovish revisions to the projected policy path.
BTMU: The release today of the latest FOMC minutes from their mid-June meeting are expected to reiterate that the Fed is in no hurry to resume rates hikes in the near-term, and imply that the Fed will require even more time to re-assess the outlook for the US economy and policy following the Brexit vote. Prior to the Brexit vote, the Fed’s updated projections signalled that it was planning to raise rates at least one more time this year which appears less likely now but not completely ruled out. The release of the ISM non-manufacturing survey for June will also be watched closely today to assess if the US economy is regaining a firmer footing after the weak start to the year. The employment sub-component has been worryingly weak heightening concerns over the health of the domestic economy. A rebound in the employment sub-component would bring some much needed relief. Another weak non-payrolls report poses the main downside risk for the US dollar in the near-term.
RBC: The Fed releases Minutes from its June meeting today. It is unusual for the Minutes to reverse the market’s take on the original statement/rate decision but that is what happened last time around. Recall the April statement was seen as very dovish while the minutes (released on May 18) led to a USD rally and repricing of rate expectations. That seems much less likely to happen this time around given that the meeting came a week ahead of the UK vote to leave the EU – comments on global conditions will be seen as dated in that light.
Barclays: At the time of the June FOMC meeting, we believed that the chair and the committee were clearly ready to raise rates but were concerned over the May labor market report and had some concern over potential side effects from the UK referendum. On balance, we believed that the committee generally minimized the weakness in labor markets, saying that the “pace of improvement in the labor market has slowed” but said it expects that “labor market indicators will strengthen” more and that one month’s data do not make a trend. We look to the minutes to judge the number of participants concerned about the labor market slowdown. We expect that a few members will have read the slowdown as reflecting a weaker outlook, that some will judge it as part of an expected slowing in labor markets, and that most will state that it is too early to judge. We also look for a discussion on inflation expectations, given the mid-month drop in the University of Michigan measure just before the June meeting. Those members predisposed to hike rates in the near term will view the dip as transitory and insignificant; those wishing to delay a hike likely noted concern over the dip.
BofA Merrill: The minutes of the June Federal Open Market Committee (FOMC) are already stale in light of the unexpected vote for Brexit.While we anticipate extensive discussion of the risks to the outlook given the decline in the dots, we expect the Fed will need to further scale back its planned interest rate path at upcoming FOMC meetings. The relative outperformance globally of US data was the main reason the April minutes sounded optimistic about a possible June hike; the key thing to watch in the June minutes is how Fed officials assessed the recent slowdown in US data, particularly the labor market, and how concerned they were about adverse global spillovers. The overall tone is likely to be cautious and thus dovish, although markets have moved further to price in some chance of a rate cut by December. We think a cut then is quite unlikely, and do not expect the minutes to advocate for additional policy easing this year – although Fed officials will always keep their options open. Market focus will be on discussion about the shift in the dot plot, particularly since it was accompanied by limited changes in the economic projections. Views on the productivity outlook are likely to feature prominently in this discussion, and there appears to be an active debate among Fed officials about whether the slowdown in productivity is permanent, what are its causes, and what it implies for monetary policy. The minutes may also reveal debate about the presentation of the dot plot, especially since St. Louis Fed’s Bullard slashed his dots and declined to give a long-run projection for the funds rate. Incorporating some indication of forecast uncertainty into the dot plot is one potential future change.
Credit Agricole: The June FOMC minutes will garner less interest than usual from market participants as the Fed’s risk management approach rules out any near-term policy moves, in our view. The tone of the minutes will likely be much more cautious than the late April minutes, which highlighted the discussion of a potential rate hike this summer. By contrast, in June, the Summary of Economic Projections (SEP) showed a shallower expected path for rate normalization and included a rise in the number of participants expecting only one rate hike this year. The key FOMC discussion points in our view were 1) the sharp deceleration in job growth and 2) the lower equilibrium Fed funds rate seen by many Fed officials. The slowdown in job growth raised concerns that the economy’s forward momentum had stalled. This called for a cautious data-dependent policy with no preset course as Fed officials awaited additional data that would validate (or not) their expectations for continued solid growth and employment gains this year. We believe the minutes will show that Fed officials were, on balance, cautiously optimistic that 1) Q2 GDP growth had rebounded and 2) the recent payroll slowdown may have been a lagged effect from the slowdown in overall activity in Q1 and would reverse with the pickup in Q2 economic activity, as suggested by Chair Yellen.
SEB: Prior to the this meeting a number of FOMC members had been out guiding market towards a summer hike. But that prior to the weak employment report which clearly was a game changer. With respect to the minutes, any indication of what officials would like to see before hiking rates again would therefore be interesting to see. After the Brexit vote we have revised our Fed forecast to a December hike.