FED MINUTES – LEAVING FORECASTS TO THE ANALYSTS
FED MINUTES – LEAVING FORECASTS TO THE ANALYSTS The FOMC minutes of the policy meet held on 16-17 June were published by the Fed on 08-July. In the policy meet, the Fed chair Kevin Warsh underlined that he was averse to give too much of…
FED MINUTES – LEAVING FORECASTS TO THE ANALYSTS
The FOMC minutes of the policy meet held on 16-17 June were published by the Fed on 08-July. In the policy meet, the Fed chair Kevin Warsh underlined that he was averse to give too much of forward guidance and would prefer to evaluate the data and leave the forecasts to the analysts. That looks like a policy pivot, but that is likely to be the road ahead.
Even in the policy statement, Kevin Warsh had opted out of giving the quarterly forward guidance on macros and left that task to the other FOMC members. The 14-page FOMC minutes have avoided any reference to how the rates will pan out in the future. This can also be due to the uncertainty over the impact of the US-Iran war on fuel inflation.
WHAT WE READ FROM THE JULY FED MINUTES
Here are some key takeaways from the Fed minutes released on July 08, 2026.
The members of the FOMC had voted to keep the benchmark rates in the range of 3.50% to 3.75%. However, the minutes clearly indicated that the vote was sharply split with the majority view tilting towards, at least, one rate hike before the end of this year. However, the members are expecting rates to soften in later years.
One reason could be that inflation has been persistently moving higher, led by fuel and food inflation. The unrest in the Middle East shows no signs of subsiding and that means; even after hostilities cease, the lag effect of the supply chain constraints could keep oil and derivative product prices elevated for much longer.
There was also an interesting analysis of the possible impact of artificial intelligence (AI) on inflation. The consensus appears to be that in the near-term, it could be inflation accretive due to price pressure on technology products and electricity. In the longer-term, AI-led productivity gains will more than offset these costs and tame inflation.
A specific statement by Kevin Warsh attracted a lot of attention. The Fed chair highlighted that the primary focus of the Fed would remain on price stability, above all else. That means; if the Fed saw risks to price stability due to the ongoing US-Iran war, it would move quickly to hike rates to arrest any inflation spike.
The outlook for inflation and unemployment appears to be quite uniform. The members of the FOMC are of the view that the upside risks to price stability continued to remain elevated, while the downside risks to achieving maximum employment had moderated a bit. This was in the light of the falling rate of unemployment in the US.
The minutes betrayed a concern among the FOMC members that the bigger risk was that inflation was becoming more broad-based across a wider range of goods and services. It is not just about gasoline prices. It is about how crude prices and the supply chain constraints were spiking prices of other products, directly and indirectly.
To cut a long story short, the minutes appear to be pointing towards one rate hike in this year, but little else. What the minutes have also hinted at is that the FOMC members will focus more on analysis of data and less on forecasts and future guidance.
WHAT DOES THE CME FEDWATCH TELL US?
The CME Fedwatch calculates the probability of rate hikes based on the trading in Fed Fund futures. Here are the probabilities across milestone meetings over next 2 years.
| FOMC | 275-300 | 300-325 | 325-350 | 350-375# | 375-400 | 400-425 | 425-450 | 450-475 | 475-500 | 500-525 |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul-26 | Nil | Nil | Nil | 70.6% | 29.4% | Nil | Nil | Nil | Nil | Nil |
| Sep-26 | Nil | Nil | Nil | 34.0% | 50.8% | 15.2% | Nil | Nil | Nil | Nil |
| Dec-26 | Nil | Nil | Nil | 16.1% | 39.0% | 32.5% | 11.1% | 1.3% | Nil | Nil |
| Mar-27 | Nil | Nil | Nil | 11.0% | 31.3% | 33.9% | 18.1% | 5.0% | 0.7% | Nil |
| Jun-27 | Nil | Nil | 0.6% | 11.7% | 30.6% | 32.9% | 17.9% | 5.3% | 0.8% | 0.1% |
| Sep-27 | Nil | 0.3% | 3.3% | 15.9% | 30.9% | 29.4% | 15.1% | 4.3% | 0.7% | Nil |
Data source: CME Fedwatch (# current Fed Rate Range)
Clearly rate cuts are almost ruled out till late 2027, and even that has very low conviction. That is till the data sees signs of substantive change. The probability of a rate hike in July 2026 is fairly low at 29.4%. However, a 25-bps rate hike looks lot more likely in September 2026 with a probability of 66%. However, through 2026 and 2027, the maximum rate hike that is anticipated is only 50 bps in total, taking Fed rates to the range of 4.00%-4.25%.
For the Fed Futures, interpreting signals is likely to get a lot more complex as the Fed limits itself to evaluating the data flows and avoids forward guidance altogether. Till the time that process stabilizes, the CME Fedwatch may be less reflective of rate trajectory in the US.
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