Excessive monetary policy communications may undermine the Fed

CONTRARY to earlier expectations, the United States’ Federal Open Market Committee (FOMC) meeting on Sep 19-20 is shaping up to be a sleepy gathering.

Markets overwhelmingly expect the FOMC to keep rates on hold in September. Relatively subdued inflation and labour market data have boosted the soft-landing camp, undoubtedly putting a smile on the faces of FOMC members. Committee speakers have practically reaffirmed the market’s view.

The FOMC faces a September communications challenge, though. Markets now anticipate an unchanged federal funds rate well into next year. The FOMC will want to welcome the most recent data, without showing sufficient satisfaction to foreclose another hike if needed or dissuade markets from adhering to the higher-for-longer expected rate trajectory.