Experts can't agree on what the Fed said in its July statement

The Federal Reserve’s July policy statement has been parsed, sliced and diced by analysts looking for any clues about the next rate hike, and one particular line buried in the second paragraph of the release caught Wall Street’s attention:

“Near-term risks to the economic outlook have diminished.”

For the first time this year the Fed acknowledged subsiding economic risks, a 180-degree pivot from the March statement when it warned of risks abroad.

The new language brings the Fed one step closer to reintroducing its balance of risks statement, a sentence the Fed included in nearly all of its 2015 press releases, which read “[the] Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced.”

When the Fed finally voted to raise rates in December — for the first time in over a decade — the statement described risks as “balanced.” Many Fed watchers agree that including balanced risks language will be a prerequisite for another rate increase.

However, it seems analysts agree on little else in the July statement. Some believe the statement opens the Fed to a September rate hike, while others expect a rate increase in December. Still others think the Fed will hold off until next year.

One thing is for sure: The Fed managed to leave its options open.

Here are some excerpts from analyst and economist notes:

Chris Rupkey, The Bank of Tokyo Mitsubishi: “Rate hikes are coming. Bet on it.”

“The July meeting is the setup for a potential rate hike in September, if the data continue to come in in a way that suggests the Fed is getting closer to achieving its goals …

If they go in September for the first time since last December you can’t be anymore gradual and cautious than that. Get on with it is our view. We think Yellen will raise the curtain on a September move at Jackson Hole in August. The economy is better than Fed officials think. Rate hikes are coming. Bet on it.”

BofA Merrill Lynch Global Research: “We expect the Fed to hike in December”

“The FOMC sounded more upbeat about the health of the labor market, noting that payrolls and other labor market indicators point to some increase in labor utilization …

We think the FOMC is preparing for another hike, but it is not imminent … We continue to believe that a September hike is unlikely, but expect conditions to be met by December to justify a rate hike, assuming no additional negative shocks.”

Omair Sharif, Societe Generale Group: Fed will wait “until next year to hike”

“Admittedly, this was a more confident statement than we expected from Fed officials …

In our view, the Fed is likely to reintroduce the balance of risks statement prior to the rate hike. So, one can envision a scenario where the Fed brings back that statement in the September communiqué in advance of a rate hike in December. A move to a ‘balanced’ assessment may be foreshadowed at Yellen’s Jackson Hole speech on August 26. While that scenario is plausible, we continue to expect the Fed to punt on a rate hike until 2017.”

Goldman Sachs Economic Research: “A roughly 70% probability of at least one rate increase this year”

“We think the statement keeps open the committee’s options for a rate increase later this year, possibly as soon as September. Accordingly, we modestly raised our subjective odds of a rate hike at the September FOMC meeting to 30% from 25% previously.

We see this phrase as a half step toward the ‘nearly balanced’ language the committee used to describe the outlook late last year, and an effective way to keep its options open for action as early as the September meeting. As a result, we have raised our subjective odds of a hike at the September meeting to 30% from 25% previously; we continue to see a 40% chance that the next hike will come in December—implying a roughly 70% probability of at least one rate increase this year.”

Peter Tchir, Brean Capital: Fed may “break with tradition and hike in the heat of the election cycle”

“[The] report seems to set the stage for a series of Fed Speakers to push on the need to hike rates…the next meeting will have the press conference and the election is already so convoluted that they might well break with tradition and hike in the heat of the election cycle …

For the past year a hawkish Fed has generally been bad for stocks and with the chase for yield dragging in dividend stocks of all sorts — the equity market is far more susceptible than usual to any back-up in treasury yields.

I think this further encourages you to ‘sit on your helmet’ during this alleged ‘helicopter’ ride.”

Capital Economics: “[W]e still expect the Fed to raise rates … probably twice this year”

“[T]he assessment that near-term risks have diminished, as well as Esther George’s decision to resume voting at this meeting for an immediate rate hike, make it clear that the odds of a September rate hike are far higher than the minor probability that was priced into futures markets.

Overall, we still expect the Fed to raise rates at least once and probably twice this year, taking the fed funds target range to between 0.75% and 1.00% by year-end.”