Fed Minutes Lean Hawkish, But Rate Hike Unlikely

The Federal Reserve's July FOMC policy meeting minutes revealed a slightly hawkish tone, but experts at ING Think do not expect an interest rate hike. The minutes showed that three officials, Beth Hammack, Lorie Logan, and Neel Kashkari, voted for an immediate 25bp interest rate increase, while nine other committee members voted to hold the fed funds range at 3.5-3.75%. Several participants favoured a rate hike, but most supported holding rates steady.

The Fed is anxious about inflation and is watching energy prices and developments in the Middle East closely. They are also wary that the AI investment binge could keep inflation elevated due to higher microchip prices feeding through into inflation more broadly via smart phones, computers, and electricity. However, some officials believe that the tariff price hike pass-through was now complete.

Despite the slightly hawkish tone, ING Think believes that the voting members lean more dovishly and will remain on hold. The June Fed forecast update showed a 9-9 split within the committee on whether they felt they would need to raise interest rates this year or not. With stronger jobs numbers and more elevated inflation needed to convince those opposed to hiking, ING Think predicts that the Fed will keep rates on hold well into 2027.