Could FOMC Minutes Drive Fed’s Next Rate Hike Decision?

Markets are awaiting the FOMC Meeting Minutes to decide on the size of the next Fed hike. FOMC will publish the July meeting minutes on Wednesday, August 17 at 18:00 GMT.

Policymakers are likely to reiterate their commitment to monitor the data closely. The US dollar started the new week on a firm footing and the Dollar Index is already up 1%. Since the Fed’s decision to abandon rate guidance and turn data driven attitude in July, markets have been trying to figure out the size of the September rate hike.

The positive July jobs report, which showed that Nonfarm Payrolls rose by 528,000, caused the probability of a 75 basis points (bps) rate hike to rise to 70%. Just a few days later, the US Bureau of Labor Statistics announced that inflation in the US, as measured by the Consumer Price Index (CPI), fell to 8.5% in July from 9.1% in June.

This reading came in lower than the market expectation of 8.7%. More importantly, the annual Core CPI remained unchanged at 5.9%, reviving optimism about inflation having peaked in early summer. The odds of a 75 bps rate increase fell all the way to 30% on soft inflation data.


FOMC policymakers pushed back against the market view of the Fed turning dovish and starting to lower rates in the second half of 2023. Richmond Fed President Thomas Barkin said they need to continue to raise the rates to get them into the restrictive territory. San Francisco Fed President Mary Daly said that markets were getting ahead of themselves by expecting rate cuts next year and noted that she would be open to a 75 bps hike in September if data warranted it. Finally, Minneapolis Fed President Neel Kashkari said that they were “far far away” from claiming victory on inflation.

In case the minutes do not offer any fresh insight into the rate outlook, investors could refrain from betting on a specific rate hike next month. Policymakers are likely to reiterate that they will continue to monitor the macroeconomic developments closely and that they will not overreact to a single data point.

To summarize, the Fed minutes could do little to nothing to help investors make up their minds about the next policy move. The tight labour market conditions should allow the US central bank to stay on an aggressive tightening path despite growing signs of a slowdown in economic activity. Meanwhile, inflation stays way above the Fed’s target rate and policymakers made it clear that they want to see price pressures easing for consecutive months before thinking about reassessing the policy strategy.

As for gold; FOMC minutes will be closely scrutinized by investors, and given how gold remains sensitive and quite reactive to anything relating to interest rates and inflation, the precious metal could turn volatile.

As for cryptos; Bitcoin rallied last week after a weaker-than-expected US CPI softened inflation and growth concerns. BTC price closed the week with a 4.92% gain, reaching above $24,100 as rate traders lowered their expectations for the Federal Open Market Committee’s September rate decision. Notably, market is pricing through Fed futures and swaps projects a 50 basis-point rate hike as the most potential outcome. The EUR/USD price is expected to react to the FOMC minutes. These minutes will provide more clarity about what the Fed will do in the coming months. The bank decided to hike interest rates by 0,75% in the past meeting.