The FOMC statement is basically setting the stage for a September beginning to QT. The wording was this: “The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated.” The emphasis is certainly mine and “Relatively Soon” is exactly what Yellen said in her Congressional testimony a few weeks ago so it should not be a surprise. We can now play a game of semantics on what “relatively soon” means but with the next meeting in September with a press conference its of course a good bet that it takes place then.
While we’ve seen a slower rate of increase in the recent inflation stats, the Fed wasn’t that bothered. After acknowledging that headline and core inflation are currently running below 2%, they said “Inflation on a 12 month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective over the medium term.”
Elsewhere on the economy the statement was pretty much identical to the one given in June but they did modestly upgrade the commentary on jobs. They said “The labor market has continued to strengthen” after saying “job gains have moderated but have been solid” in June. On the two key components of the economy, “Household spending and business fixed investment have continued to expand.”
In response, bond yields are down about 1 bp from where they were right before the statement. The dollar is weaker but there was absolutely NOTHING in this statement that should have been a surprise to anyone. QT is starting in September and another rate hike is not front of mind.