Wall Street Comments on the Fed's June Meeting Minutes: Core Focus on Inflation, No Urgency for Near-Term Rate Hikes
- Core View: The Fed's June meeting minutes indicate that the future direction of monetary policy depends entirely on inflation data. Currently, no one has a sense of urgency for a near-term rate hike, and the market interprets this as a dovish signal.
- Key Elements:
- The minutes show that "most" participants discussed two scenarios: if inflation falls quickly, rates could be maintained or eventually lowered; if it remains persistently high, some policy tightening would be necessary.
- Goldman Sachs pointed out that the core dividing line in the minutes is whether inflation can fall "quickly," which will directly determine the direction of interest rates. The current reaction function remains data-driven.
- Morgan Stanley believes that while a "few" participants saw reasons for a rate hike, this did not translate into an intention to act, and the minutes do not point to an "institutional shift" in the Fed's reaction function.
- Citigroup emphasized that the lower-than-expected June non-farm payroll data has eased concerns about the labor market fueling inflation. Their baseline expectation is for two 25-basis-point rate cuts in October and December of this year.
- All three institutions concur on one forecast: a rate hike in 2026 is highly unlikely, while rate cuts may need to wait until 2027. Morgan Stanley specifically expects two rate cuts after 2027.
Original author: Long Yue, Wall Street Insight
The minutes of the Federal Reserve's June meeting were released, and three major Wall Street institutions read the same signal from them—inflation is the real key determining whether interest rates will be raised.
The minutes of the Federal Reserve's June FOMC meeting were published on July 8. The minutes showed that "all" participants supported keeping the federal funds rate unchanged in the 3.5%-3.75% range. While the market initially feared the minutes might be hawkish, after reading them, it generally interpreted them as marginally dovish—the reason being simple: the minutes showed no urgency for a rate hike in the near term.
According to sources from the trading desk, Goldman Sachs, Morgan Stanley, and Citigroup quickly released commentary reports after the minutes were published, with their core judgments highly consistent: the Fed's current reaction function remains data-driven, and policy direction depends entirely on inflation data performance in the coming months.
The team led by Goldman Sachs economist Jan Hatzius directly pointed out the core logic: The key dividing line in the minutes is whether inflation can begin to fall "soon." If so, "almost all" officials discussing this scenario supported "maintaining or eventually lowering" rates; if not, similarly, "almost all" officials discussing the high-inflation scenario believed that "some degree of policy tightening might be necessary."
Two paths, one key: inflation data.
"A Few" Saw Reasons for a Hike, But No One Really Wanted to Act
One of the most closely watched phrases in the minutes was that a "few" participants saw "reasons for a rate hike" at the June meeting.
However, Morgan Stanley's chief US economist Michael Gapen explicitly stated that this is different from "leaning towards a rate hike." He wrote: "These 'few' participants indicated that they were currently satisfied with keeping the policy rate at its current level."
Citigroup economist Andrew Hollenhorst shared the same view. In his report, he cited the original language from the minutes, noting that these participants "expressed support for maintaining the current target range at this meeting." In other words, even if some thought a rate hike was justified, no one was actually going to press that button at this juncture.
Notably, in the previous SEP dot plot, 9 officials projected a rate hike by 2026, with several expecting 2-3 hikes. However, judging by the language of the minutes, this hawkish leaning has yet to translate into a willingness to act.
