US Daily: FOMC Recap: No Hike and No Guidance

Research evidence excerpt

US Daily: FOMC Recap: No Hike and No Guidance

Goldman Sachs US Daily

FOMC Recap: No Hike and No Guidance

The run-up to today’s July FOMC meeting was unusually dramatic, with markets pricing a

roughly 35% chance of a hike ahead of the meeting, signaling the most uncertainty

about whether or not the FOMC would hike in three decades.

But the meeting was somewhat anticlimactic, ending with no change to the funds rate,

no substantive changes to the post-meeting statement, and no policy guidance or even

explanation of the FOMC’s interpretation of the inflation situation during Chairman

Warsh’s press conference. Presidents Hammack, Kashkari, and Logan dissented in favor

of a 25bp rate hike.

We had expected that most FOMC voters would not want to hike today because the June

inflation data showed substantial improvement relative to prior months. Many voters

have said that they want to see sustained improvement in the inflation data and are

open to raising rates eventually if necessary. While Warsh downplayed the role of the

June CPI report in today’s decision, we suspect that was the thought process for most of

the other eight voters who preferred to leave the funds rate unchanged today.

Warsh reiterated his view that it is better for him to say little about his monetary policy

expectations or assessment of the economic data so that markets can reach their own

verdict without being influenced by the opinions of Fed officials. Nevertheless, he made

several comments during his press conference that we interpreted as dovish, consistent

with his vote to leave the funds rate unchanged.

First, he appeared to downplay AI-related price pressures, though somewhat subtly.

Referring to increases in memory and logic chip prices, he asked, “Do these changes