Market Data 
- The Minutes of the Fed’s June 11-12 policy meeting will be published on Wednesday.
- Details of Jerome Powell and Co’s hawkish hold and their inflation outlook will be scrutinized.
- Markets wager a roughly 67% chance of a Fed interest-rate cut in September.
The Minutes of the US Federal Reserve (Fed) June 11-12 monetary policy meeting will be published on Wednesday at 18:00 GMT. Investors will scout for details into the Fed’s hawkish hold and policymakers’ outlook on inflation to gauge the timing of the expected interest rate cut this year.
Jerome Powell admits disinflation progress, a September cut likely?
The Fed maintained its monetary policy settings for the seventh consecutive meeting in June, as widely expected. In its policy statement, the US central bank said that “while inflation has slowed recently and the jobs market has become more balanced this year, the uncertain economic outlook keeps the Fed “highlight attentive to inflation risks”.”
“Summary of Economic Projections (SEP), the so-called Dot Plot, broadly met expectations with a higher inflation forecast for 2024 and less easing this year; The median FOMC member called for one 25 basis point cut by the end of this year and four 25 basis point cuts in 2025,” the policy statement read.
In the post-meeting press conference, Fed Chairman Jerome Powell noted that “we need further confidence, more good inflation readings but won’t be specific about how many to start rate cuts. We’ll also be looking at a balance of risks, and outlook as well.” “Unexpected weakness in the labor market could also call for a response,” Powell explained.
Just a few hours before the Fed policy announcement, the US Bureau of Labor Statistics published the May inflation report. Data showed that the core Consumer Price Index (CPI) increased 0.2% on the month and 3.4% from a year ago, compared with respective estimates of 0.3% and 3.5%.
Since the May inflation report and the June policy announcement, several Fed policymakers remained wary about the inflation outlook, suggesting that the rates could stay ‘higher for longer’.
However, dovish Fed bets returned on the table after data on June 28 showed that the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, rose at an annual pace of 2.6% in May after advancing 2.7% a month before. May’s inflation readings were in line with economists’ expectations.
Fed Chairman Jerome Powell’s much-awaited comments at the European Central Bank (ECB) Forum on Central Banking in Sintra on Tuesday added to the Fed rate cut expectations. Powell acknowledged the recent progress in disinflation, which was perceived as dovish even though he quickly added he wanted to see more before being confident enough to start lowering interest rates.
Currently, markets see a 67% chance of the Fed lowering rates in September, a tad higher than about 63% seen before Powell’s commentary.
Previewing the Fed’s publication, “Wednesday’s FOMC minutes will also shed light on the Fed’s more cautious stance at the June meeting, though SEP projections might prove to be already somewhat stale,” TD Securities analysts said.
When will FOMC Minutes be released and how could it affect the US Dollar?
The Fed will release the minutes of the June 11-12 policy meeting at 18:00 GMT on Wednesday. Investors will keep a close eye on any hints on the timing of the policy pivot, especially after the ongoing disinflationary trend and dovish Fed Chair Powell’s remarks.
In case the Minutes show that policymakers continued to warrant caution on inflation, pushing back against aggressive Fed rate cut expectations while justifying a single rate cut later in the year, the US Dollar (USD) could stage a comeback against its major rivals. If the publication suggests that officials express their optimism on the encouraging progress in inflation, risk flows could regain momentum and weigh negatively on the USD.
Dhwani Mehta, Asian Session Lead Analyst, shares a brief technical outlook for the US Dollar Index (DXY):
“The US Dollar Index has been in a consolidative phase after retreating from two-month highs of 106.13, with risks likely to the upside amid a 21-day and the 50-day Simple Moving Averages (SMA) bullish crossover. The 14-day Relative Strength Index (RSI) stays firm above the 50 level, near 56.30, adding credence to the bullish potential. In case the index finds acceptance above the 106.00 threshold, a retest of June highs at 106.13 cannot be ruled. The next upside target is seen at the 106.50 psychological mark.”
“On the flip side, if the 21-day SMA support at 105.37 gives way, a test of the 50-day SMA at 105.17 will be inevitable. A sustained move below that level could fuel a fresh downtrend toward the 100-day SMA at 104.76.”
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
