Topline
A divided Federal Reserve does not anticipate an interest rate cut before early 2027, according to minutes from the Federal Open Market Committee’s June meeting released Wednesday, as a renewed conflict in the Middle East pushed odds of a rate hike by September to nearly 70%.
Fed Chair Kevin Warsh said he welcomed a “good family fight” over interest rate policy.
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Key Facts
The FOMC, which unanimously voted last month to hold interest rates between 3.5% and 3.75%, expects no changes to the rate until a cut in Q2 2027, according to minutes published Wednesday.
President Donald Trump on Wednesday said an interim peace deal with Iran was “over” and the U.S. would “probably” hit the country with strikes again overnight, further saying he was “not sure” he wanted another deal, in remarks that briefly sent international oil benchmark Brent Crude above $80 again.
Equities also stumbled following Trump’s remarks: The Dow Jones Industrial Average dropped about 570 points, or 1%, and the S&P 500 and Nasdaq dropped 0.3% and 0.1%, respectively.
The implied probability of an interest rate hike by September jumped to 68.8% as of Wednesday afternoon, up from 62% the prior day, with odds surging to 85.3% by December, according to CME Group’s FedWatch tool.
what else did the fed say about interest rates?
A “few” central bank officials said there was a case for hiking interest rates, but they later supported a decision to leave rates unchanged, minutes show. Other officials viewed the Federal Reserve’s rate policy as too restrictive, suggesting support for a cut, though they also ultimately backed a vote to leave rates on hold. “Many” participants said interest rates would be “within or slightly below” the current range by the end of the year, and at the same time, “many other” participants assessed that interest rates would be higher.
key background
The Federal Reserve has cited stubborn inflation in recent months as a possible reason to hike interest rates. Nine of the Federal Open Market Committee’s 18 members indicated they favored at least one interest rate hike this year following last month’s vote, after a “majority” of officials said a rate hike may be appropriate if inflation persisted above the Fed’s 2% goal. Consumer prices have steadily increased as the Iran war sent oil and gas prices surging, and core consumption expenditures index data—the Fed’s preferred inflationary reading—showed annual inflation hit 3.4% in May, the fastest rate in nearly three years. Core Consumer Price Index data similarly hit a three-year high, showing costs rose 4.2% annually as gas prices surged 59% year-over-year.