Wall Street Commentary on the Fed's June Meeting Minutes: Focus on Core Inflation, No Urgent Need for Rate Hikes in the Short Term

Wall Street Commentary on the Fed's June Meeting Minutes: Focus on Core Inflation, No Urgent Need for Rate Hikes in the Short Term

The minutes of the Fed's June meeting have been released, and Wall Street’s three major institutions read the same signal—inflation is the real switch that decides whether to raise rates or not.

The Fed's June FOMC meeting minutes were published on July 8. The minutes show that "all" participants supported keeping the federal funds rate unchanged within the 3.5%-3.75% range. The market initially worried the minutes might be hawkish, but after reading them, most interpreted them as marginally dovish—the reason is simple: the minutes show no urgency for a rate hike in the near future.

According to Chasewind Trading Desk, Goldman Sachs, Morgan Stanley, and Citi all swiftly released assessment reports after the minutes, with core judgments highly consistent: the Fed's current reaction function remains data-driven, and policy direction entirely depends on the performance of inflation data in the coming months.

Goldman Sachs economists led by Jan Hatzius directly pointed out the core logic: the key watershed in the minutes is whether inflation can begin to fall "soon." If so, "almost all" officials discussing this scenario support "maintaining or eventually lowering" rates; if not, the same "almost all" officials discussing the high inflation scenario think "some degree of policy tightening may be needed."

Two paths, one key: inflation data.

A “minority” see reasons for rate hikes—but no one actually wants to raise rates

One of the most watched phrases in the minutes is that "a minority" of participants thought there was "reason to raise rates" at the June meeting.

But Michael Gapen, Morgan Stanley's chief U.S. economist, made clear that this is not the same as "favoring a rate hike." He wrote: "These 'minority' participants indicated they are currently satisfied with keeping policy rates at their current level."

Citi economist Andrew Hollenhorst agreed. He cited the minutes, noting that these participants "supported leaving the current target range unchanged at the meeting." In other words, even if some think rate hikes make sense, no one at this point actually wants to press that button.

Worth noting, the previous SEP dot plot showed 9 officials expect rate hikes in 2026, several anticipating 2-3 hikes. But the minutes' wording suggests this hawkish tendency has not yet translated into willingness to act.

Inflation: Not just about the high level, but the direction

The core logic of the minutes can be summarized in one sentence: Wherever inflation goes, rates follow.

Goldman’s team pointed out that in the minutes, "most" participants discussed two scenarios:

Scenario 1: Inflation pressures abate, inflation “quickly” starts returning to the 2% target—“almost all” participants discussing this scenario believe at that point, rates should be “maintained or eventually lowered.”

Scenario 2: Inflation stays high due to AI-related demand, Middle East conflicts, or tariff factors—“almost all” participants discussing this scenario believe “some degree of policy tightening may be necessary.”

The team summarized officials’ specific comments: Participants universally noted both core and overall inflation further rising, “far above” the 2% target, mainly due to tariff effects, supply chain interruptions from the Strait of Hormuz blockade, and strong demand driven by AI-related investment. “Several” officials noted price pressures were becoming broad, covering transportation, airfare, petrochemicals, and agricultural inputs; services inflation outside housing “remains high.”

But the reason officials aren’t acting urgently hinges on two points:

First, inflation expectations remain consistent with the path to the target. Second, “many” officials believe the labor market is “currently not a source of inflationary pressure.” Citi's Hollenhorst added that June’s non-farm payrolls were below expectations and previous figures revised down, further reducing concerns about the labor market reigniting inflation. This means the current high inflation is seen by officials more as a result of supply shocks rather than runaway demand.

Morgan Stanley's Gapen specifically interprets the phrase “some degree of policy tightening”: this means “recalibrating policy stance”—i.e., raising rates by 50-75 basis points, not starting a full rate hike cycle.

Gapen uses “soon” to define the Fed’s patience threshold—they believe this probably means “the next few months,” specifically the next 3-4 inflation data releases. If signs show inflation dissipating and supply pressures are temporary, staying put is the right answer.

This is not a “regime shift”—still data-driven

Some market participants worry that new Fed Chair Warsh may push for a fundamental change to the monetary policy framework—not "looking at data" but actively tightening to suppress inflation faster.

Morgan Stanley’s Gapen responds directly: “The minutes do not point to an ‘institutional shift’ in the Fed’s reaction function.” He believes that the passages about monetary policy outlook in the minutes remain entirely within the previous “data-dependent” framework.

The logic: If inflation falls, the Fed stays put and opens the door for future easing; if inflation doesn’t fall, the Fed may reverse some or all of the rate cuts implemented last year for risk management. “This shows data remains important, and the committee is still uncertain about the inflation path,” writes Gapen.

On the communication strategy, the format of the minutes is basically consistent with previous meetings, still containing forward-looking statements, scenario analysis, and descriptive terms like "minority," "some," "majority." Morgan Stanley notes earlier market concern that Chair Warsh might drastically cut the information in the minutes, but “the new minutes look very similar to the old ones.”

Three institutions’ forecasts: No rate hike this year, rate cuts not until 2027

There are subtle differences in the three institutions’ forecasts, but their direction is unified:

Morgan Stanley expects that if inflation fades as forecast, the Fed will keep rates unchanged this year, and cut rates twice in 2027 or after, each by 25 basis points. Gapen believes there’s not enough data to support a July rate hike, but if inflation exceeds expectations, a September hike “is theoretically possible.”

Goldman Sachs expects core PCE to drop to 3.0% (currently 3.4%) year-on-year by end-2026, and core CPI to 2.6% (currently 2.9%), with monthly readings remaining moderate in coming months. The base case is to keep rates unchanged throughout 2026, but admits some risk of a rate hike.

Citi takes the most dovish view. Hollenhorst believes the market’s pricing of a July rate hike is “too hawkish relative to the Fed’s reaction function.” He expects, with unemployment rising in coming months, the committee will shift from hiking to cutting, base case being two 25 basis-point rate cuts in October and December this year, and another 25 basis points in January 2027.

 

 

 

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