The possibility of a significant change in the FOMC Statement was highlighted at the end of the July Minutes, released last week. In a long paragraph, a large number of FOMC participants was said to agree the funds rate would soon be reaching a level that should not be described as "accommodative." The market could interpret a dropping of that description as signaling a near-term end of the tightening cycle or at least a pause.
The paragraph read:
"Many participants noted that it would likely be appropriate in the not-too-distant future to revise the Committee’s characterization of the stance of monetary policy in its postmeeting statement. They agreed that the statement’s language that “the stance of monetary policy remains accommodative” would, at some point fairly soon, no longer be appropriate. Participants noted that the federal funds rate was moving closer to the range of estimates of its neutral level. A number of participants emphasized the considerable uncertainty in estimates of the neutral rate of interest, stemming from sources such as fiscal policy and large-scale asset purchase programs. Against this background, continuing to provide explicit assessment of the federal funds rate relative to its neutral level could convey a false sense of precision." [highlights mine]
This week's US economic data are minor, with consensus looking for small pullbacks in many of them. A run of softer data into the September meeting could encourage Fed officials to change the Statement.
Follow me on Twitter at @cjslyce. I may comment on just-released US economic data or other market developments. Note that I pointed out the significance of the July Minutes in a tweet last week.
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