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The Fed’s Minutes Are Hawkish. They Also May Be Out of Date.

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Federal Reserve Chairman Jerome Powell in June 2022.

Kevin Dietsch/Getty Images

Minutes from the Federal Reserve’s June 14-15 meeting reveal central bankers’ growing anxiety over inflation and plans to adopt a restrictive policy stance in order to cool rapidly rising prices.

The minutes read hawkish. Major stock indexes, however, rose after the release as investors consider economic developments since the Fed last met and bet that flagging economic growth will ultimately limit the amount of tightening the central bank must conduct. Both the

S&P 500

Nasdaq 100
gained about 1% within an hour of the release.

Members of the Federal Open Market Committee, the Fed’s policy-setting arm, agreed in June that a rate increase of 0.5 percentage point or 0.75 percentage point would likely be appropriate in July after they agreed to a 0.75-percentage-point hike in June. That was the biggest rate increase since 1994, prompted by a hot consumer price index and a surprise jump in consumer inflation expectations’ just before the June meeting. Those two data points dashed hopes that inflation had already peaked and set off alarm bells that inflation is becoming entrenched.


Investors already knew that the Fed is between a half-point and another three-quarter point hike for July. Fed Chairman Powell suggested the base-case is the former, though he hasn’t taken another 0.75-point increase off the table. Traders have priced in about a 90% chance of a 0.75-point increase in July, and the minutes should do nothing to change that expectation.

Where the question remains is what happens after July. On their face, the latest meeting minutes indicate the Fed will remain aggressive, with 0.5-percentage-point hikes the new 0.25-point moves and officials suggesting they will err on the side of overtightening. 

“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes say.

But one of the big reasons for the 0.75-percentage-point hike was a data point that has since been revised lower, presumably relieving some panic that is palpable in the minutes. That is as commodity prices tumble, further increasing hopes that inflation—at least on the goods side of the economy—has topped.

As for the revised data point that was key to the super-sized hike: Officials expressed particular concern over the University of Michigan’s 5-10 year inflation expectations gauge within the university’s monthly consumer confidence report. That measure shot up from 3% to 3.3% just before the June meeting. “Many participants raised the concern that longer-run inflation expectations could be beginning to drift up to levels inconsistent with the 2% objective,” the minutes say, adding that those participants said that if inflation expectations were to become unanchored, it would be more costly to bring inflation back down to target. 

Soon after the June meeting and 0.75-point decision, though, the University of Michigan released its revised report, with the 5-10 year inflation expectation figure revised down to 3.1%. It noted that the revised reading was back within the 2.9% to 3.1% range that has held for the past year or so.

Still, inflation expectations remain well above the Fed’s 2% target. And while commodity-price declines, rising mortgage rates, and warnings from companies including retailers are underpinning hopes that inflation has finally topped out, peaking is one thing and falling is another. Consider what economists at Goldman Sachs said this week. The year-over-year core CPI—which excludes food and energy—will reaccelerate this summer, to 6.3% in September from 6% in May, they say. By year end, it will still be at 5.5%, they add, which is almost three times the targeted annual rate of inflation.

Markets have already shifted their focus from inflation to growth—and more so after the big June hike and ahead of a potentially similar increase this month. Unclear is when the Fed will shift its focus, and whether inflation will remain high even as growth falters. The June minutes don’t give any hints that officials are starting to waver. But things are moving fast, and the minutes are already three weeks old.

“What markets want to hear now is what the Fed has in mind if economic data releases continue to signal a deeper, more serious downturn without a commensurate easing in inflation,” says Quincy Krosby, chief equity strategist at LPL Financial. What markets hope for is that by the next meeting, inflation is plateauing, indicating that Fed policy is working, she says. 

For that, investors will have to keep waiting. At this point, economists expect the June CPI report, due out July 13, to show overall prices rose another 8.6% from a year earlier. 

Write to Lisa Beilfuss at

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