July FOMC meeting, an opportunity to give guidance on balance sheet normalization - BBVA

According to the Research Department at BBVA, the Federal Reserve will keep rates unchanged on Wednesday. They see the meeting as an opportunity to keep markets aligned with a gradual tightening path.

Key Quotes: 

“The FOMC at its July 25th-26th meeting will forgo rate increases, leaving the target federal funds rate at 1.25%.”

“Given that global growth has improved and that the risks of geopolitical instability have declined, we expect the committee’s statement to focus on how confident they are in inflation reaching their target and what a persistent undershooting could mean for future rate increases.”

“More importantly, the committee will announce the start date of Balance Sheet Normalization in September, so this will be the last opportunity to give guidance to the markets before the process kicks off.”

“Assuming inflation conditions do not deteriorate further, financial conditions remain stable and there are no major shifts in domestic policies, we anticipate the committee will resume interest rate policy normalization in December.”