Let’s explore what the minutes might reveal and how they could shape market expectations.

Fed Pauses In June, But Hints At 2 More Hikes

During the June meeting, the Fed decided to maintain the funds rate target at 5%-5.25%, pausing a series of uninterrupted rate hikes that started in March 2022. Yet the updated economic projections in June suggest that fed funds may reach 5.6% by the end of the year, indicating the possibility of two more rate hikes.

Fed Chair Jerome Powell‘s recent comments suggest that two further rate hikes are a “pretty good guess” following the June pause, with the possibility of consecutive hikes still on the table.

It’s highly likely the minutes of the June meeting will confirm the board’s strong majority for two additional rate hikes in 2023 and the intention to maintain higher interest rates for an extended period.

Read also: After Powell’s ‘Muddled’ Message, Economist Thinks Fed Minutes May Clarify ‘Awkward’ June Meet Outcome

Market Expectations Are Dovish: Only 1 Rate Hike Has Been Priced In

Skepticism remains among market participants that the Fed can enact two more rate hikes in 2023.

CME Group’s Fedwatch tool predicts a nearly 90% chance of a rate hike in July, but only a 17% or 30% chance of another hike in either September or November.

The market has already priced in a rate cut in the first quarter of 2024, but the Fed minutes could push this optimistic expectation forward to the second quarter of next year. The Fed’s latest economic projections suggest a gradual decline in the fed funds rate to 4.6% in 2024.

CME Group Fedwatch: Target Rate Probabilities As Of July 5, 2023

Investors Brace For Return Of Volatility

There is room for surprises and thus a return of volatility if the Fed sticks to a fairly hawkish stance by leaning toward two hikes.

Ahead of Wednesday’s release of the Federal Reserve’s minutes, the CBOE Volatility Index (VIX), or ‘fear index,’ rose by 3%.

At the end of June 2023, the volatility gauge hit the lowest level since February 2020 after a 44% year-to-date plunge.

The following popular ETFs that track the VIX index:

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