The June FOMC minutes should clarify disagreements about the 2025 rate outlook and offer insight into the Fed’s upcoming review of its monetary policy framework. The June dot plot showed a close 10–9 majority favoring two rate cuts in 2025. The minutes might explain what conditions could lead to rate cuts this year. Goldman expects the minutes to provide details on the Fed’s internal discussions about its framework. The May minutes hinted at a possible return to flexible inflation targeting (FIT), moving away from the flexible average inflation targeting (FAIT) used since 2020. The Fed may keep a strategy for scenarios where rates reach the zero lower bound.

Committee Considerations

The minutes may also reveal how the Committee views inflation, tariffs, and labor market data. This information could help markets assess the chances of a rate cut this year. If there’s clarity on the framework review, it may shape expectations about how the Fed will respond to inflation in the future. In simple terms, the early signals suggest Federal Reserve policymakers are considering returning to their older approach—aiming for 2% inflation without excessively correcting past shortfalls. During the pandemic recovery, FAIT allowed inflation to exceed target for some time. Based on Powell’s comments and insights from the May minutes, there seems to be a stronger preference for responsiveness rather than overcorrection. Reading between the lines, it appears the group is split. The vote indicates a slight lean towards easing in 2025, but this balance could shift with a strong jobs report or a rise in core inflation. If the minutes explain why some participants favored only one cut or no cuts at all, it could refine our year-end policy estimates. Yellen’s recent comments, made outside the central bank, suggest she is closely monitoring inflation persistence, influencing discussions about what might prompt earlier or larger cuts.

Policy Forecast and Implications

Many are paying close attention to the policy-setting group for hints that unexpected rate changes in 2024 could happen if inflation starts to fall below current levels. If the minutes highlight which data points are prioritized—such as PCE inflation, wage growth, or unemployment trends—it would give traders clearer reference points for setting rate expectations and managing risk. Tariffs are another factor to consider. If trade restrictions tighten, they naturally contribute to inflation. If the Fed acknowledges these risks in the minutes instead of avoiding them, it would impact future rate expectations. We’re especially focused on this for sectors sensitive to changes in trade flow. While issues like full employment targets and inflation symmetry are still debated, the key is how these discussions affect timing. For those involved in rate derivatives, small changes in tone can lead to significant moves in short-term yield curves, particularly if there’s clarity on whether policy shifts would be slow or immediate. Finally, if the minutes introduce new language about the review of their framework—especially suggesting increased flexibility—the market will likely see this as a sign of potential policy changes. Not immediately, but over the next six to twelve months, guidance will become more dependent on data. We’ll keep an eye on shifts in language, especially regarding inflation persistence and any preference for real-time adjustment over fixed-term planning. Create your live VT Markets account and start trading now.

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