FED: July FOMC Minutes: Cautious On Inflation Risks (1/3)
In keeping with a divided Committee, the July meeting minutes contained slightly mixed messages about the FOMC's view of the outlook for inflation, labor market, and ultimately policy. But overall the minutes were more cautious about inflation than the labor market, and the key passage - which appears to have generated a slightly hawkish market reaction - is "participants generally pointed to risks to both sides of the Committee's dual mandate, emphasizing upside risk to inflation and downside risk to employment. A majority of participants judged the upside risk to inflation as the greater of these two risks, while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk."
- Given that, it's no surprise the minutes more broadly paint a cautious outlook on inflation, though it's not far removed from what we've heard from various members including Chair Powell at the press conference. Per the minutes: "with regard to the outlook for inflation, participants generally expected inflation to increase in the near term. Participants judged that considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year's increase in tariffs. In terms of timing, many participants noted that it could take some time for the full effects of higher tariffs to be felt in consumer goods and services prices."
- In these minutes, "a couple" almost certainly refers to dissenting Governors Bowman and Waller. They also saw inflation trends as more benign than the majority ("Many" participants saw inflation remaining "somewhat above" target with tariffs becoming "more apparent in the data"), and close to target ex-tariffs. So this small minority saw little to worry about on the inflation front, but plenty to be concerned about on the jobs front.
- Same as in the June meeting, only "a few" had a "transitory" base case view of tariffs' impact on inflation.
- But compared with June's meeting minutes, which said "most participants noted the risk that tariffs could have more persistent effects on inflation", the outlook on inflation persistence appeared to be a little more mixed in July. For instance, "a few participants stressed that current demand conditions were limiting firms' ability to pass tariff costs into prices." And just "a few" remarked "that tariff-related factors, including supply chain disruptions, could lead to stubbornly elevated inflation and that it may be difficult to disentangle tariff-related price increases from changes in underlying trend inflation."
- Despite that seemingly more mixed set of opinions, overall there clearly was concern by the majority over longer-term inflation issues stemming from tariffs that kept many on the Committee cautious: "Several participants emphasized that inflation had exceeded 2 percent for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation....Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored."
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USDJPY TECHS: Bull Phase Remains Intact
- RES 4: 151.21 High Mar 28
- RES 3: 150.49 High Apr 2
- RES 2: 149.38 50.0% retracement of the Jan 10 - Apr 22 bear leg
- RES 1: 149.18 High Jul 16
- PRICE: 147.30 @ 17:09 BST Jul 21
- SUP 1: 146.92 Low Jul 16
- SUP 2: 146.55 20-day EMA
- SUP 3: 145.78 50-day EMA
- SUP 4: 144.23 Low Jul 7
A bull cycle in USDJPY remains in place despite the Monday sell-off and last week’s gains mark an extension of the current uptrend. The latest rally has resulted in a breach of resistance at 148.03, the Jun 23 high, and a move through key resistance at 148.65, the May 12 high. The break strengthens the bullish theme and sights are on 149.38, a Fibonacci retracement. On the downside, key short-term support is seen at 145.78, the 50-day EMA.
US: Trump's Approval Continues To Slide Amid Pressure From MAGA Base
President Donald Trump's approval rating continues to trend negative, as polls reflect a lukewarm response to the GOP's reconciliation package - the One Big Beautiful Bill - and elements of Trump's MAGA base express dissatisfaction with the administration's handling of the Jeffrey Epstein case.
- Ruth Igelnik at the New York Times notes: "Recent polls have shown President Trump’s agenda to be largely unpopular with the public. A majority of Americans expect his signature domestic policy bill will hurt the country, disapprove of his handling of the files in the case of Jeffrey Epstein, and oppose deporting undocumented immigrants to countries other than their own, according to a recent Quinnipiac Poll. And an increasing share of Americans think Trump is focused on the wrong priorities, according to a CNN/SSRS poll."
- Silver Bulletin notes: "The share of Americans who strongly approve of Trump has also fallen below 27 percent for the first time in his second term. About 43 percent of Americans strongly disapprove of Trump."
Figure 1: Trump Approval Rating
Source: New York Times
COMMODITIES: Spot Gold Advances 1.3% to Initial Resistance
- Both Brent and WTI futures sit moderately lower on Monday, although both are comfortably off session lows. Continued focus for global markets remains on US trade talks ahead of the August 1 tariff deadlines, amid EU preparations of countermeasures. Signs of a potential Russia-Ukraine meeting may have provided a headwind for oil prices, though tight diesel markets lent some support later in the session.
- Russia and Ukraine may hold talks on Wednesday or Thursday, according to various media reports. Trump has given Putin a 50-day deadline to reach a peace agreement.
- A bearish tone in WTI futures remains intact and the recovery since Jun 24 is considered corrective. The sharp reversal from the Jun 23 high continues to highlight scope for an extension lower. Support to watch is the 50-day EMA, at $65.68.
- Elsewhere broad dollar weakness has been led by a bull flattening move for US treasuries, providing solid support for precious metals.
- According to TD Securities, macro funds have begun buying back their previously built short positions in gold, and there remains strong belief that gold can rise further as trade negotiations continuing, policy rate cuts, a stagflationary environment and challenges to central bank credibility provide a supportive backdrop.
- Today’s solid 1.3% advance for spot gold has exposed $3395.1, the Jun 23 high, and the next upside target is located at $3451.3, the Jun 16 high. Note that medium-term trend conditions are bullish - moving average studies are in a bull-mode position highlighting a dominant uptrend.
