20

th
AUGUST 2014
FOMC MINUTES PREVIEW Due for release at 1900BST/1300CDT

Market remain focused and sensitive to further clarity on when the Fed see rate lift-off although no big surprises
are expected from the July minutes - markets are currently pricing in the first hike in July 2015

Minutes release likely to be overshadowed by Fed Chair Yellens appearance at Jackson Hole just two days later

Although todays FOMC minutes will be keenly followed and have the potential to alter the markets view on the direction
of the Feds rate path, they are likely to be overshadowed by Fed Chair Yellens appearance at Jackson Hole just two days
later on Friday 22
nd
August, especially given the dated nature of the FOMC minutes. Despite this, markets will remain very
sensitive to a timeframe for the first hike to the Fed Fund Rate and as such any indication that the Fed are having a more
extensive discussion on a return to policy normalisation is likely to mean markets will realign expectations.
The FOMC minutes from the July 29-30
th
meeting delivered no huge surprises, and although showed minor tweaks in the
statement, members reiterated that highly accommodative policy will be appropriate for a considerable period of time after the asset
purchase program ends. The minutes are likely to show many of the Fed see continued improvement in the labour market but slack
remains, especially given the decision showed that although the Fed removed the reference to unemployment rate being elevated,
a range of labour market indicators suggest significant underutilisation of labour resources. Julys decision also showed a hawkish
move, albeit from a hawkish member, as Plosser dissented on the statement that low rates are to remain appropriate for a
considerable period. And so if the minutes suggest other members are beginning to support a similar view as Plosser, this would be
much more hawkish that markets are currently pricing in and hence rates would likely climb across the curve.

MARKET REACTIONS:
Markets remain sensitive to any change in view of when rate lift-off will occur however no surprises are expected from the July
minutes release. As is often the case however, markets are at risk of aggressive price action should minutes surprise the markets,
and with the first rate hike currently priced in for July 2015, any change in view will see markets readjust and bear steepening of the
Eurodollar curve if the minutes are more hawkish than expected. Conversely, as US equity markets have pulled off record highs
in recent weeks, this leaves scope for upside on a more dovish release and a move further above 4,000 in the NASDAQ 100. Spot
gold has been particularly sensitive to US data in recent months and continues to oscillate around USD 1300/oz, and so a release
out of line with expectation could see a strong move away from USD 1300 particularly ahead of Fed Chair Yellens appearance on
Friday.

RECENT COMMENTARY FROM FED OFFICIALS
Fed's Bullard (non-FOMC) said Fed is debating the timing of rate liftoff and reiterated that he sees first rate rise at end of
Q1 2015. (August 15th)
Fed's Kocherlakota (voter, dove) said it is a mistake to raise rates too early and Fed is long way from inflation goal.
(August 15th)
Feds Lockhart (non-voter, dove) said still thinks H2 of 2015 is an appropriate time for possible rate hike. (August 6th)
Fed's Fisher (voter, hawk) said FOMC coming in my direction, sees moving date of liftoff 'further forward' and if Fed's
policy setting committee does not continue to move in my direction, I will dissent. (August 5th)