Ahead of the Fed minutes release, Morgan Stanley notes that markets should seek clarity on the split between dovish dissenters and the core Fed stance later today. That especially on their views on the labour market and tariffs inflation.
While Fedspeak has tilted more dovish recently, the firm argues that it is much less so than markets are expecting currently. And the Fed minutes today will underscore the tensions surrounding the dovish dissents and policymakers who are adopting a more cautious stance.
Morgan Stanley says to place emphasis on two main things. The first being how much weight the Fed will be placing on softening labour market conditions. The second being the Fed’s take on the impact of tariffs on inflation and how that might lead to potential stagflation pressures.
However, the firm’s take in all this is that the Fed minutes should highlight the ongoing internal debate at the central bank but not likely to advocate to the full extent the dovish pricing/expectations by markets. As such, that leaves room for disappointment should traders continue to rely on key risk events to reaffirm rate cut pricing for September.
This article was written by Justin Low at investinglive.com.