Fed minutes had underlying hawkish tone

Yesterday's published FOMC minutes reveal that most Federal Reserve officials, during their meeting in June, expressed a likelihood of implementing additional tightening of monetary policy. However, these are anticipated to be at a more moderate pace compared to the previous rapid series of rate increases that have been a feature of monetary policy since 2022.

A pause in June was decided on to assess the lagging impact of policy. This was after 10 consecutive rate increases, totalling 5% - the most aggressive hiking cycle since the 1980s. The minutes state that "leaving the target range unchanged at this meeting would allow them more time to assess the economy's progress toward the Committee's goals of maximum employment and price stability."

Of concern, the Fed minutes highlighted that members "agreed that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation, but that the extent of these effects was uncertain."

Differences in opinions were apparent among the members. Out of the 18 participants, only two did not anticipate any rate hikes this year. The majority, with 12 members, expected two or more hikes to be appropriate.The overall tone of the minutes was on the hawkish side and a rate increase in July seems more than likely, with the CME FedWatch Tool suggesting a 91% probability of a hike.