July FOMC Preview – One (more) and done? Likely the last hike but they will stay data dependent in case inflation flares up again…

George Goncalves, MUFG Head of U.S. Macro Strategy, expects the Fed to deliver one more hike of 25bps at the upcoming July FOMC meeting. The FOMC statement should not see major tweaks at this time of the year, largely given that it’s a July meeting that sits between Jackson Hole and the September FOMC meeting updates (and also because the June FOMC meeting saw the Fed upgrade its forecasts on growth, inflation and rates).  

In order for the Fed to keep all options open and avoid hinting that this may be their last hike they need to keep forward guidance in place by keeping this phrase largely unchanged “In determining the extent to which additional policy firming may be appropriate.”  As George has mentioned before, until chair Powell strikes out the inflation concerns from the opening remarks in the presser, they are focused more on fighting inflation versus being overly concerned about the trajectory for growth. The presser is what ultimately determines how markets read chair Powell’s tone if this July hike was a dovish, neutral, or hawkish hike. We are leaning on the neutral to hawkish side.