What to Expect from the FOMC on July 26th
– The next FOMC meeting to focus on inflationary concerns rather than mull further rate hike
– Discussion also likely to center on portfolio reduction strategy, but start date not expected
– Questions still remain over the removal of mortgage-backed securities from Fed balance sheet
The FOMC will meet next week for the first time since it hiked rates for the second time this year, while also affirming its desire to raise rates an additional four times through 2018.
Since that meeting, other central banks have provided hints that they may join the Fed in tightening credit conditions. At the ECB meeting presently underway President Draghi may signal a plan to begin slowing its massive asset purchase program.
These meetings come on the heels of a widely expected rate hike from the Bank of Canada, which surprised markets by maintaining a hawkish tone that pushed the odds of yet another hike this year to 66% from just 40% prior to the meeting.
These actions have led to the belief that central banks are approaching the tightening process in a coordinated manner, which is providing another leg to the reflation trade that began last year. The initial market reaction since late June has been to push global yields higher, add volatility into currencies, while generally providing support to risk assets.