Rates as of 0500 GMT

Market Recap

The minutes to the July 27th meeting of the ratesetting Federal Open Market Committee FOMC were pretty evenly balanced.

On the one hand, the Committee members expected that the actions theyve taken so far and would continue to take will slow the economy and allow them to pause their tightening. Particularly in the housing sector, many participants noted the emerging response of aggregate demand to the tightening of financial conditions associated with the ongoing firming of monetary policy. Many participants expected growth in economic activity would be at a belowtrend pace in the second half of this year as the response of aggregate demand to tighter financial conditions becomes stronger and more broadbased. Accordingly, participants judged it likely would become appropriate at some point to slow the pace of policy rate increases to assess the effects on the economy and inflation.

On the other hand, the Committee still judged that inflation remains unacceptably high and inflationary pressures are broadbased. As several members noted after the July meeting, some participants indicated that once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time.

This is contrary to the markets assumption that the Fed will quickly begin loosening after rates peak. According to the futures market, fed funds will peak in April and a rate cut will come by September, only five…