While it appears to be increasingly likely (odds) that the Fed will Sept-Taper (desperate to use economic data to cover the fact that they are cornered due to deficits, sentiment, and technicals), in the lead-up to the next FOMC meeting on September 17-18, as Stone McCarthy notes, there are some significant developments regarding the outlook for the Fed and monetary policy between then and and now that everyone should be paying attention to...
Via Stone & McCarthy,
August 21 - The minutes of the July 30-31 FOMC meeting at 14:00 ET will be carefully combed through for hints of when the Committee might determine on tapering and/or any sort of forward guidance regarding the path of monetary policy. We think that the economic data released prior to that meeting was neither so weak as to counsel continuing the asset purchases at the $85 billion per month pace, nor sufficiently robust to determine that the time for tapering was nearing. The minutes will not include any formal update to the FOMC's Summary of Economic Projections (SEP). In any case, the minutes will be three weeks old, and a certain amount of economic data and comments by some FOMC participants in the intermeeting period will supersede the minutes.
August 30 - Governor Elizabeth Duke will leave office, and there will be one vacancy on the Board. It is expected that Governor Sarah Bloom Raskin's departure will be shortly thereafter when she is nominated as Deputy Treasury Secretary and begins the confirmation process. It is quite possible that she will abstain from the vote at the next FOMC meeting in order to avoid any conflict between her present and future roles, or perhaps simply not attend. We would also look for a formal announcement from the Obama Administration in the next few weeks that Chairman Ben Bernanke is leaving at the end of his term, and to reveal the name of the person nominated to be his successor.
September 3 - With the Labor Day holiday out of the way, markets will return to a four-day week. These four days and the next Monday are effectively the last opportunity for Fed policymakers to give public comments before the communications blackout period in advance of the FOMC meeting goes into effect. Comments are likely to emphasize that the outlook for monetary policy is data-dependent, and that no decision on the next steps will be made until the actual meeting. The Board of Governors should hold one if its closed meetings to discuss discount rate policy around midday as they normally do about two weeks in advance of an FOMC meeting.
September 4 - The next issue of the Beige Book set for release at 14:00 ET will cover approximately the period between early July and late August. The tone of the Beige Book has been one of middling growth for quite some time, but the last issue hinted at some strengthening in activity in a few Districts. If this next report does sound more upbeat, it will argue for a higher probability of a paring in the asset purchase program.
September 6 - The relative strength or weakness in the August employment report will do much to solidify expectations for the outcome of the September FOMC meeting. Private payroll gains have been hovering near the 200,000 level on average for six months or so. That might be interpreted by policymakers as sufficient to constitute a sustained improvement in the labor market. The unemployment rate is moving lower in fits and starts, and currently rests at 7.4%. Unless the August data is below the recent trend, it will probably not discourage the FOMC from reducing the size of the asset purchase program.
September 9 - The communication blackout period in advance of the FOMC meeting goes into effect at midnight. During the day on Monday will be the last chance for any public remarks from policymakers. If a Fed official should make public comments for the following 10 days, he/she will avoid the topic of monetary policy.
September 13 - The August data on retail and food sales will play into how the FOMC views economic conditions as the third quarter progresses. The July data was on the disappointing side, but strong back-to-school sales and summer inventory clearance may give the third quarter a stronger outlook for consumer spending.
September 16 - The Board of Governors will meet in closed session around midday to discuss discount rate policy in advance of the FOMC meeting. The discount rate has been at 75 basis points since February 2010, and is not likely to be increased as yet to avoid any perception that policy is tightening. We anticipate that the Kansas City and Philadelphia Feds will both request a 25 basis point increase to normalize the rate back to the 100 basis point spread that was in place before the financial crisis.
September 17 - There are two pieces of data set for release on Tuesday that could particularly influence the tone of the FOMC discussions. First, the August CPI will give the best information about the direction of inflation. Second, the NAHB/Wells Fargo Housing Market Index for September could signal if conditions in the housing market are on track for further gains. The former was consistent with more stable inflation in July, and the latter pointed to continued upward momentum for the housing market as of the August report.
September 17-18 - The FOMC meeting will cover two days and include an update to the SEP. The post-meeting statement and forecast materials will be released at 14:00 ET on Wednesday, to be followed by the Chairman's post-meeting press briefing at 14:30 ET. At this writing we anticipate that the FOMC will announce its intention to taper the monthly $85 billion in asset purchases. If so, the Chairman will outline the developments in the economic data that led the Committee to make the decision, and reiterate guidance on the probable speed with which the program would be wound down. The Chairman will repeat that policy remains accommodative, that the size of the balance sheet will continue to provide support, and that any increase in the fed funds target rate from the current 0%-0.25% is some distance away. We would emphasize that this outcome is dependent on the economic data showing continued growth in line with the expected pick up in the second half of the year, and that inflation has stabilized or firmed from the low levels present in the first half of the year.
September 19 - The communications blackout period around the FOMC meeting ends at midnight.