FOMC minutes failed to shed light on the timing balance sheet reduction - BBH

The FOMC minutes from last month's meeting failed to shed fresh light onto the timing of the beginning of gradually reducing its balance sheet, according to analysts at BBH.  

Key Quotes

“It seems as if an agreement on it could be achieved before the next move on the Fed funds target.  That said, the minutes were explicit:  "most" thought that the recent softening of prices was due to "idiosyncratic" developments.”

“In terms of Fed policy, the market's attention now turns to Yellen's semi-annual testimony to Congress next week, followed by the July 25-26 FOMC meeting.   The Fed has yet to adopt the tactics under the otherwise plain-spoken Chair that would maximize the degrees of freedom in terms of meetings.  Specifically, the Fed seems only comfortable to announce policy changes at meetings followed by press conferences.  It could hold press conferences after every meeting, which is what the Bank of Japan and the European Central Bank do, for example.”

“Although the minutes do not clarify the situation, we expect the Fed to be content monitoring the economy until the September FOMC meeting.  It will have a better sense of the trajectory of prices, including wages.  It can have a better sense of the true signal being generated by the broader financial conditions.”

“The Fed has already put the markets on notice that it will begin "relatively soon" not reinvesting all the maturing Treasuries and MBS.  We expect the economy to evolve in such a way as to allow the Fed to carry through with this commitment at the September FOMC meeting.  This will allow the balance sheet to shrink by what seems like an inconsequential $30 bln before the end of the year.”