00:00Krishna Gua of Evercore writing,
00:01Minutes are not particularly hawkish.
00:03The FOMC is likely not currently minded to hike in September.
00:07Krishna joins us now for more.
00:08Krishna, welcome to the programme.
00:09That was some new information, potentially.
00:11The bigger piece of information came from the Treasury and Scott Besson.
00:14To what extent do you believe that action might influence the decision
00:17of the committee in the coming weeks?
00:21Well, it certainly complicates things for Walsh and for the rate outlook.
00:25I mean, remember, Kevin Walsh has made a point of saying
00:28that he wants to step back and let the market form its own yield curve,
00:34let the market determine what the appropriate degree of restraint
00:37across the yield curve is,
00:39and suggest that the Fed in some senses should be a little bit more differential
00:42to that, perhaps, and not try to guide or shape that
00:46in the way that his predecessors have done.
00:48And he still also argued that that, in a sense, in the interim,
00:51can make sure that monetary conditions are appropriate for the economy,
00:55giving the Fed time to think about what it should do.
00:57Now, it's a lot harder to appeal to market yields
01:01when the Treasury Secretary is actively intervening in that marketplace.
01:05So I think it does have to push Walsh a little bit more into the mode
01:11of a more conventional focus on monetary policy.
01:14Obviously, to the extent that Besson's able to hold down yields,
01:18if he is, dollar weakens other things,
01:20that needs to be taken into account in setting a monetary policy.
01:24But I do not think that this is, at present, a game-changer for September.
01:30What do you think would be a game-changer?
01:32So I think what we've seen very clearly in those Fed minutes
01:36is that the committee is reasserting a traditional form of data dependence.
01:41They wanted to see how the inflation data, broadly considered,
01:45so that's inflation, it's also oil, more broadly,
01:48any signs of overheating in the real economy.
01:50How did that data evolve over the summer
01:52before making the call on rates in September?
01:56Most Fed officials, per the minute,
01:58do expect that inflation will moderate over the balance of the year.
02:02And I think under that old-school data dependence,
02:04the data is coming in so far good enough not to go in September.
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