Today’s release of the July 2015 Fed meeting minutes is the last official release by the Fed until the September’s possible liftoff announcement. The language is unprecedented. In recent years as the Fed said the conditions for policy firming had not yet been achieved; they noted that conditions were approaching that point. This prepares the markets for a September increase (they are trying to avoid the confusion and market volatility from the 2013 taper tantrum), but gives the Fed cover to wait until December. The criteria has always been employment and inflation. Macro employment numbers are strong and exceed stated thresholds. However; inflation is nowhere near the 2.0% Fed target (2.0% inflation was last recorded in 2012). Recent statements by Fed officials have ranged from inclined to move in September (Atlanta Fed President w/agreement from the St Louis Fed President), but raising rates now would be a mistake (op-ed by Minneapolis Fed President). A WSJ poll of economists predicts a September increase but the futures markets seem to predict a December increase. Meanwhile, currency wars rage on as devaluations continue (Vietnam and Kazakhstan today), partially spurred by the expectation of a US rate increase. Today the 10 year T rallied from 2.19% down to 2.12% – it may come down to the data. The next few weeks of reports will be highly scrutinized by market participants. CMBS: Lots of supply, continued uncertainty (China, Fed, etc), etc. Two pools priced this week with 10 year AAAs at SWAPs+120 (compared to a low of S+85 a few months ago). Originators are still quoting and closing, including some very large transactions. Borrowers are still locking attractive rates due to the lower Treasury/SWAP…stay tuned…. David R. Pascale, Jr.
