Ahead of the July FOMC Minutes

The markets will be examining Wednesday's release of the July FOMC Minutes for hints that Fed officials were becoming more concerned with the risk of low inflation.  The markets may be disappointed, however, given that the July FOMC Statement repeated the same sentence regarding inflation risks found in the June FOMC Statement and also given that the latest low inflation readings were released after the July FOMC Meeting.

If there is a hint, it should be seen in a significant change in the key paragraph in the June FOMC Minutes, shown below.  An example is if the word "some" is replaced by "many" or "most" in describing the number of members who are concerned about downside inflation risks.

From the June FOMC Minutes:
"With regard to the outlook for inflation, some participants emphasized downside risks, particularly in light of the recent low readings on inflation along with measures of inflation compensation and some survey measures of inflation expectations that were still low. However, a couple of participants expressed concern that a substantial undershooting of the longer-run normal rate of unemployment could pose an appreciable upside risk to inflation or give rise to macroeconomic or financial imbalances that eventually could lead to a significant economic downturn. Participants agreed that the Committee should continue to monitor inflation developments closely."

The next occasion when Fed officials could weigh in on low inflation is the Jackson Hole Conference on August 24-26.  Note that ECB President Draghi will speak at this conference and could discuss low inflation as well as the possibility of curtailing policy stimulus in Europe.