FOMC Minutes Show Fed Is Ready To Raise Rates

Key Insights

• FOMC Minutes indicated that almost all Fed officials wanted to leave the interest rate unchanged in June, but some participants favored a rate hike. 
• Fed members are determined to fight inflation and believe that additional rate hikes would be necessary. 
• FOMC Minutes were a bit more hawkish than expected. 

On June 5, the Fed released FOMC Minutes. The release provides a chance to take a look at Fed’s discussions at a time when traders prepare for another rate hike in July.

According to FOMC Minutes, “almost all participants noted that in their economic projections they judged that additional increases in the target federal funds rate during 2023 would be appropriate.” Interestingly, “some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting […]”

The Fed has previously published its interest rate projections, which showed that the median federal funds rate in 2023 is expected at 5.6%, compared to the March projection of 5.1%.

It should be noted that the market does not believe in two additional rate hikes. According to FedWatch Tool, there is a 88.7% probability of a 25 bps rate hike at the next meeting in July. After the July meeting, the federal funds rate is expected to remain unchanged at 525 – 550 bps. However, there is a 27.5% probability that federal funds rate would be at 550 – 575 bps at the end of the year.

U.S. Dollar Index tested session highs after the release of FOMC Minutes. Currently, U.S. Dollar Index is trying to settle above 103.35. FOMC Minutes were somewhat hawkish, although it remains to be seen whether U.S. dollar will gain material upside momentum.

SP500 pulled back towards the 4440 level. The index has settled near yearly highs after a strong rally in the first half of the year, so it needs material catalysts to move higher. Traders have not found dovish signals in FOMC Minutes, so SP500 moved lower.

Gold declined towards the $1915 level, driven by stronger dollar and rising Treasury yields. The yield of 2-year Treasuries settled near the 4.95% level, which indicated that bond traders believed that the federal funds rate would stay at high levels for many months.

For a look at all of today’s economic events, check out our economic calendar.