At the July 26-27 FOMC meeting, the Fed hiked rates by 75 basis points to 2.25-2.50%. There was some speculation they could go 100 bps but Waller tempered that two weeks before the decision and that kicked of the ongoing equity rally.
The economic assessment in the FOMC statement said:
Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
The highlights of the Minutes:
- Some participants said policy would have to reach a 'sufficiently restrictive' level to control inflation and remain there 'for some time'
- Participants emphasized that a slowing in aggregate demand would play an important role in reducing inflation pressures.
- Participants agreed that there was little evidence to date that inflation pressures were subsiding. They judged that inflation would respond to monetary policy tightening and the associated moderation in economic activity with a delay and would likely stay uncomfortably high for some time.
- Participants noted that recent readings on market-based measures of inflation compensation were consistent with longer-term inflation expectations remaining anchored near 2 percent
- Participants concurred that the pace of policy rate increases and the extent of future policy tightening would depend on the implications of incoming information for the economic outlook and risks to the outlook.
- Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.
- Participants noted that the Committee's credibility with regard to bringing inflation back to the 2 percent objective, together with its forceful policy actions and communications, had already contributed to a notable tightening of financial conditions that would likely help reduce inflation pressures by restraining aggregate demand.
- Full text
Financial conditions is largely a code word for 'the stock market' and that tightening they touted has since reversed.
The problem with this rally in stocks is that every point higher gives the Fed more leeway to hike. And the rally is predicated (at least partly) on less hiking.
In any case, there's no big hawkish headline here and there's talk about "assessing the effects of cumulative policy adjustments", which is something akin to a dovish slowdown in hikes. With this, the implied odds of a 50 bps are now at 59% compared to 40% yesterday.
Stocks are also coming back and the US dollar is sagging.