Mitsubishi UFJ: Fed Minutes Should Not Be Over-Interpreted

A Mitsubishi UFJ analyst said investors should avoid over-interpreting details in the Federal Reserve’s meeting minutes, arguing that the backdrop ahead of the June meeting differs significantly from current conditions. According to Jin10, Mitsubishi UFJ analyst Derek Halpenny said the Fed will release the minutes from the June FOMC meeting later today, but warned that the context before that meeting was very different from now. He said the dot plot was likely submitted in the week ending June 12, and that if the meeting were held now, the FOMC dot plot would not show nine officials supporting a rate hike. Halpenny added that, on this basis, the overnight index swap curve appears to be pricing in too much tightening. He said pricing for a rate hike at the July 29 meeting remains close to 30%, and that this looks too high given that labor market data have already weakened. He also said markets have priced in nearly 40 basis points of rate hikes through March 2027, but that Mitsubishi UFJ believes the likelihood of rate cuts by then is greater than the likelihood of further hikes.