Breaking: FOMC Minutes left the door open to rate hikes if inflation picks up pace

According to the Minutes from the two-day session held on June 11-12, Federal Reserve officials acknowledged that the US economy seemed to be slowing and noted that "price pressures were easing." However, they advised adopting a cautious stance and refraining from committing to interest rate cuts until further observation.

Fed officials noted that a weak May reading in the consumer price index, along with other developments in the product and labour markets, supported the belief that inflation was decreasing.

The Minutes also indicated that participants voted to maintain the policy rate within the 5.25%-5.50% range. They acknowledged that progress in reducing inflation had been slower this year compared to their expectations in December.

Some participants stressed the importance of patience before considering rate cuts, while several others mentioned the potential necessity to raise rates again if inflation were to rebound.

In addition to keeping rates unchanged, policymakers at the June meeting postponed the anticipated commencement of rate cuts. New projections revealed that Fed officials, at the median, anticipated only one quarter-percentage-point rate cut this year, a revision from the three cuts expected at the March 19-20 meeting.

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This section below was published as a preview of the FOMC Minutes of the June 12 meeting at 06:00 GMT.

• The Minutes of the Fed’s June 11-12 policy meeting will be published on Wednesday.
• Details of Jerome Powell and Co’s hawkish hold and their inflation outlook will be scrutinized.
• Markets wager a roughly 67% chance of a Fed interest-rate cut in September.

The Minutes of the US Federal Reserve (Fed) June 11-12 monetary policy meeting will be published on Wednesday at 18:00 GMT. Investors will scout for details into the Fed’s hawkish hold and policymakers’ outlook on inflation to gauge the timing of the expected interest rate cut this year.

Jerome Powell admits disinflation progress, a September cut likely?

The Fed maintained its monetary policy settings for the seventh consecutive meeting in June, as widely expected. In its policy statement, the US central bank said that “while inflation has slowed recently and the jobs market has become more balanced this year, the uncertain economic outlook keeps the Fed “highlight attentive to inflation risks”.”

“Summary of Economic Projections (SEP), the so-called Dot Plot, broadly met expectations with a higher inflation forecast for 2024 and less easing this year; The median FOMC member called for one 25 basis point cut by the end of this year and four 25 basis point cuts in 2025,” the policy statement read.

In the post-meeting press conference, Fed Chairman Jerome Powell noted that "we need further confidence, more good inflation readings but won't be specific about how many to start rate cuts. We'll also be looking at a balance of risks, and outlook as well." "Unexpected weakness in the labor market could also call for a response,” Powell explained.

Just a few hours before the Fed policy announcement, the US Bureau of Labor Statistics published the May inflation report. Data showed that the core Consumer Price Index (CPI) increased 0.2% on the month and 3.4% from a year ago, compared with respective estimates of 0.3% and 3.5%.

Since the May inflation report and the June policy announcement, several Fed policymakers remained wary about the inflation outlook, suggesting that the rates could stay ‘higher for longer’.

However, dovish Fed bets returned on the table after data on June 28 showed that the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, rose at an annual pace of 2.6% in May after advancing 2.7% a month before. May's inflation readings were in line with economists' expectations.

Fed Chairman Jerome Powell’s much-awaited comments at the European Central Bank (ECB) Forum on Central Banking in Sintra on Tuesday added to the Fed rate cut expectations. Powell acknowledged the recent progress in disinflation, which was perceived as dovish even though he quickly added he wanted to see more before being confident enough to start lowering interest rates.

Currently, markets see a 67% chance of the Fed lowering rates in September, a tad higher than about 63% seen before Powell’s commentary.

Previewing the Fed’s publication, “Wednesday's FOMC minutes will also shed light on the Fed's more cautious stance at the June meeting, though SEP projections might prove to be already somewhat stale,” TD Securities analysts said.

When will FOMC Minutes be released and how could it affect the US Dollar?

The Fed will release the minutes of the June 11-12 policy meeting at 18:00 GMT on Wednesday. Investors will keep a close eye on any hints on the timing of the policy pivot, especially after the ongoing disinflationary trend and dovish Fed Chair Powell’s remarks.

In case the Minutes show that policymakers continued to warrant caution on inflation, pushing back against aggressive Fed rate cut expectations while justifying a single rate cut later in the year, the US Dollar (USD) could stage a comeback against its major rivals. If the publication suggests that officials express their optimism on the encouraging progress in inflation, risk flows could regain momentum and weigh negatively on the USD. 

Dhwani Mehta, Asian Session Lead Analyst, shares a brief technical outlook for the US Dollar Index (DXY):

“The US Dollar Index has been in a consolidative phase after retreating from two-month highs of 106.13, with risks likely to the upside amid a 21-day and the 50-day Simple Moving Averages (SMA) bullish crossover. The 14-day Relative Strength Index (RSI) stays firm above the 50 level, near 56.30, adding credence to the bullish potential. In case the index finds acceptance above the 106.00 threshold, a retest of June highs at 106.13 cannot be ruled. The next upside target is seen at the 106.50 psychological mark.”

“On the flip side, if the 21-day SMA support at 105.37 gives way, a test of the 50-day SMA at 105.17 will be inevitable. A sustained move below that level could fuel a fresh downtrend toward the 100-day SMA at 104.76.”