Return to Insights

Fed Minutes in Focus

Minutes released from FOMC policy meeting, triple lock pensions, and UK retail sales released tomorrow.

Yesterday evening saw the release of the FOMC’s minutes from their latest policy meeting on 26 July which showed most policy makers still saw “significant upside risks to inflation”. This came as the Fed  met expectations by raising rates 25bps, bringing the benchmark target rate to 5.25%-5.5, its highest rate in 22 years. With markets speculating on whether the Fed have reached their terminal rate, the minutes expressed some hawkish undertones, stating that persistent inflation “could require further tightening of monetary policy.” Such rhetoric was reiterated in Powell’s speech following the rate decision where the Fed Governor maintained that the CB would remain “highly attentive to inflation risks” and “continue to assess additional information and its implications for monetary policy”. As such, Powell concluded “I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted”.

The minutes also showed that two Fed officials “could have supported” keeping rates unchanged, proving some dovish undertones. Here, the minutes stated that “they judged that

maintaining the current degree of restrictiveness at this time would likely result in further progress toward the Committee’s goals”. Hence, with inflation coming down in line with projections and just 1.3 percentage point off their target level, some policy makers consider monetary conditions to be sufficiently tight. However, given that US growth appears to remain resilient in light of monetary tightening and was considerably stronger-than-expected over Q2, some policy markers remain concerned that the world’s largest economy potentially remains too hot.

At the back end of last week, money markets were pricing in around a 22% chance of a 25bps hike between now and November, with this being upwardly revised to a 28% chance yesterday. Presently, implied money markets expectations are now projecting around a 32% chance of a 25bps rate hike between now and November. As such, the general market consensus is pointing to the notion that the Fed have likely achieved their terminal rate.

Triple Lock, Safe and Secure

Yesterday evening, Prime Minister Rishi Sunak tried to reassure pensioners by maintaining that the triple lock pension remains safe and secure. With Sunak trying to safeguard the support of the elder proportion of the electorate ahead of the next general election, the PM stated that “of course the government is committed to its policy on the triple lock”.

The triple lock ensures that that pensions rise by the highest of either inflation, average earnings, or 2.5%. Hence, with CPI at 6.8% in July and average earnings growth (including bonuses) at 8.2%, the cost of rising the state pension for the 12m or so on a full state pension would cost the Treasury an additional £10bn a year. According to the Office for Budget Responsibility, the latest increase in the state pension will have added around £14 billion to this year’s pensions expenditure, feeding into the total bill of around £124 billion.

All Eyes on UK Retail Sales Tomorrow

Tomorrow morning will see the release of UK Retail Sales, which are forecasted to come in at a 0.5% contraction on a month-on-month basis, a considerable deceleration from last month’s print of 0.7%. As we looked at earlier this month, the BRC note that 6,000 retail outlets have been closed in the UK in the past five years. This has come as the country has of course grappled with a pandemic, decades high levels of inflation, and tight monetary and fiscal conditions. As such, the retail vacancy rate has risen from 13.8% in Q1 2023 to 13.9% in Q2.

 

Download
article

If you would like a PDF of this commentary, please contact us and we'll be in touch.

Contact us

Related
Commentary

Find out how we have helped our clients meet their hedging requirements.

Monday Rundown

Macro Monday, expectations set on future tax cuts, unwelcome opposition for Labour after Galloways Rochdale by-election win, ceasefire talks stalled, Russians intercept German air force video conference, talk of issues and downgrades of US regional banks, and looking ahead to this weeks data calendar.

WTFX: Issue 10

In this month’s WTFX we look at the Space Renaissance and the extent to which the UK is making inroads into outer space...

Morning Round-Up

Friday Feeling, Labour majority overturned by Workers Party of Britain in Rochdale by-election, PCE index for the US comes in line with expectations, prices rose by more than expected in the Nationwide House Price Index, and growing GDP for Canada.

EC Considers Using Funds from Frozen Russian Assets to Arm Ukraine

Thought for Thursday, president of EC proposes the use of funding from frozen Russian assets to arm Ukraine, disquiet between Poland and Ukraine as Polish prime minister considers closing borders, and this afternoons US data release.

G20 and Michigan Primary in Focus

Word of the week Wednesday, G20 reconvene in Sao Paulo, Democrat and Republican primary elections in Michigan last night, and preparations for the Gaganyaan space mission sees four Air Force pilots shortlisted.

Hungarian National Assembly Approves Sweden’s Nato Bid

Travel Tuesday, motion supported by Hungarian parliament to allow Sweden to join Nato, Trump's legal bill continues to grow interest with US monetary conditions at their tightest level in 22 years, and today's data.

Red Sea Disruption

Macro Monday, report from the BCC on the impact on British businesses from Red Sea disruption, Ukraine president announces number of deaths since the Russian full-scale invasion, and data releases today.

Two Years Later

Friday feeling, what's happened in the last two years of the Russia-Ukraine conflict, and more hawkish views from the Fed.

Find out more about our foreign exchange solutions
Contact us