Fed Minutes Show Dissent On The Board, Foreshadow More Interest Rate Hikes In 2023: What Investors Need To Know

The minutes of the Federal Open Market Committee (FOMC) meeting on June 14 reveal a strong consensus among board members for additional interest rate hikes in 2023, echoing recent remarks by Fed Chair Jerome Powell, who has advocated for two more increases.

June FOMC Minutes: 5 Things You Need To Know

1. Dissidents among the Fed: Almost all participants agreed to maintain the target range for the federal funds rate at 5%-5.25% during the June meeting. Yet the minutes show that some participants expressed support for a 25bps increase given strong economic momentum and tight labor market.
   
2. Additional rate hikes in the pipeline: Economic projections from participants indicated a consensus that further increases in the target federal funds rate will be appropriate throughout 2023.
   
3. Effects of monetary tightening still unseen: Participants recognized that the full effects of previous monetary tightening measures have yet to be fully observed. Higher interest rates could potentially weigh on economic activity, hiring and inflation for households and businesses.
   
4. Inflation ‘unacceptably’ high:Participants acknowledged that inflation was unacceptably high and noted that recent inflation prints, including the May CPI, showed a slower decline than expected.
   
5. Data-driven policy as uncertainties remain: Participants emphasized that policy decisions will continue to be based on incoming information on the economy and inflation, as uncertainty remains elevated.

Stocks Dip, Volatility Remains In Check As Traders Challenge The Fed

Traders did not meaningfully adjust their expectations Wednesday afternoon, with the probabilities of a rate hike at the July 26 meeting remaining at 88%. The likelihood of a back-to-back hike in September also stayed unchanged at 17%, according to the latest CME Group Fedwatch tool.

After the minutes were released, the SPDR S&P 500 ETF Trust SPY eased 0.3% for the session, while tech stocks in the Invesco QQQ Trust QQQ erased session gains.

The CBOE Volatility Index (VIX), also known as the fear index, ticked up from 3% to 4% for the day.

The Invesco DB USD Index Bullish Fund ETF UUP, a measure of the dollar’s strength, gained 0.3% for the day.

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