As a reminder for traders who are still a bit groggy after celebrating America’s independence yesterday, the Federal Reserve opted to raise its benchmark interest rate by 25bps to the 1.75-2.00% at its meeting three weeks ago.

We noted at the time that the central bank made numerous upgrades to its economic assessment, both in the monetary policy statement and the quarterly Summary of Economic Projections (SEP). Most importantly, we learned that the median Federal Reserve member now expects rates to rise to additional times this year (with the most likely occasions in September and December, when the central bank holds an accompanying press conference). Finally, Fed Chair Powell expressed a more cautious tone in his press conference, citing concerns about global trade as a possible risk to continued economic growth.

With today’s release of the minutes from that June meeting, we now know that Powell’s colleagues at the Fed shared this concern. According to the minutes, “…most Fed officials saw intensified risks around trade policy,” and the risk of an escalation in the nascent trade war has, if anything, escalated over the past three weeks with the US, China, European Union, Canada, and Mexico all threatening further tariffs and more protectionism.

In addition, the minutes highlighted that "a number of Fed officials said it was important to watch the yield curve slope,” an indicator that is gaining importance as it approaches inversion; to wit, the 2yr-10yr Treasury spread has dropped below 30bps today to its lowest level since 2007.

Despite worries about trade and the yield curve, there was still broad support for “gradual” rate hikes amid the “very strong economy,” so the primary thrust of the minutes supports the central bank’s hawkish lean.  Indeed, Fed officials discussed removing the statement language about monetary policy remaining “accommodative” in an acknowledgement that interest rates are approaching a “normal” level relative to history.

Market Reaction

With many traders on holiday and the much timelier June Non-Farm Payrolls report set for release in less than 24 hours, the market reaction to today’s FOMC minutes has been minimal. US stocks have seen a modest intraday drop on the release, with the Dow Jones Industrial Average shedding a quick 100 points. The benchmark 10-year Treasury bond is trading unchanged on the day, while the US dollar is ticking higher against most of its major rivals but falling vs. the New Zealand dollar and euro.

This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD appreciates as US Dollar remains subdued after a softer inflation report

AUD/USD appreciates as US Dollar remains subdued after a softer inflation report

The Australian Dollar steadies following two days of gains on Monday as the US Dollar remains subdued following the Personal Consumption Expenditures Price Index data from the United States released on Friday.

AUD/USD News
USD/JPY consolidates around 156.50 area; bullish bias remains

USD/JPY consolidates around 156.50 area; bullish bias remains

USD/JPY holds steady around the mid-156.00s at the start of a new week and for now, seems to have stalled a modest pullback from the 158.00 neighborhood, or over a five-month top touched on Friday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven JPY. 

USD/JPY News
Gold price bulls seem non-committed around $2,620 amid mixed cues

Gold price bulls seem non-committed around $2,620 amid mixed cues

Gold price struggles to capitalize on last week's goodish bounce from a one-month low and oscillates in a range during the Asian session on Monday. Geopolitical risks and trade war fears support the safe-haven XAU/USD. Meanwhile, the Fed's hawkish shift acts as a tailwind for the elevated US bond yields and a bullish USD, capping the non-yielding yellow metal.

Gold News
Week ahead: No festive cheer for the markets after hawkish Fed

Week ahead: No festive cheer for the markets after hawkish Fed

US and Japanese data in focus as markets wind down for Christmas. Gold and stocks bruised by Fed, but can the US dollar extend its gains? Risk of volatility amid thin trading and Treasury auctions.

Read more
Bank of England stays on hold, but a dovish front is building

Bank of England stays on hold, but a dovish front is building

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures