US futures are pointing to a flat open on Thursday, as investors look to get their teeth into the FOMC minutes from the meeting in July.
The Federal Reserve has very much come back into focus in recent days after John Williams suggested that a higher inflation target may be more suitable for the US economy in the current environment of sluggish growth. These comments suggest Williams opposes further rate hikes despite certain economic indicators indicating that such a move would be suitable, which poses the question of what other policy makers share this view and is there therefore a reluctance within the Fed to do so.
The weakness in the dollar that followed was pared shortly after when William Dudley – a permanent voter on the FOMC – suggested it’s premature to talk about raising the inflation target and claimed he still expects more than one hike before the end of 2017, including one possibly as early as next month. His views on rate hikes were echoed by Dennis Lockhart – like Williams, not a voting FOMC member this year – who claimed at least one rate hike this year can’t be ruled out, although like Williams he did welcome a re-examination of the basic assumptions of central banking, including changing target inflation rates. Perhaps this is something that could gather some momentum if the US economy continues to experience lower levels of growth.
The movements of the last couple of days means investors are now pricing in a rate hike in December, albeit marginally, something that can and probably will change dramatically between now and then. Markets are very sensitive to commentary from the Fed and the release of the FOMC minutes from the meeting last month certainly constitute that.
Source – CME Group FedWatch Tool 
Of particular interest will be what the Fed was referring to when it claimed that “near-term risks to the economic outlook have diminished”. If the Fed is of the belief that Brexit will have limited impact on the economy and the outlook remains as it was prior to the vote, then a rate hike this year remains a very real possibility. That said, growth in the second quarter was very disappointing again and while the two revisions could change our view on that, it is likely to complicate things. The number was released two days after the meeting though so there’s unlikely to be any reference to it in the minutes.
What will be of more importance to the markets, given the number of important releases we’ve had since the meeting, will be Janet Yellen’s speech at Jackson Hole next week. The Fed has at times in the past used this event to steer the markets ahead of a key monetary policy decision and there’s no reason they won’t again this year, especially if markets pricing of the event is far out.
For a look at all of today’s economic events, check out our economic calendar .
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