On the July FOMC: The Most Unkindest Hike of All

As the market fully expected, a 25 bp rate hike to a 22-year high on top of a rate the FOMC openly admits is “restrictive.” June’s “skip” was to attain more information – the bulk of which turned out to be dovish. Yet today’s statement changes only a single word, recharacterizing growth as “moderate” rather than “modest.”  The “skip” is revealed as not about data at all, but only part of the slowing pace of hikes announced at last November’s meeting. As of this writing. Powell said it would be “not appropriate” to wait to see inflation all the way back at target before halting the hikes. Yet he seems blind to the fact that, excluding shelter, half the CPI consumption basket is already in outright deflation. Following the meeting, markets slightly downgraded the implied probability of any further hikes. We agree.