The release of the minutes from the July Federal Open Market Committee (FOMC) meeting has further solidified investors’ expectations for a rate cut at the upcoming September meeting. Policymakers highlighted continued progress in disinflation, a key factor in the Fed’s decision-making process. The US dollar index, closely tracked by the Invesco DB USD Index Bullish Fund ETF (UUP), extended losses to a negative 0.3% for the day as of 3:40 p.m. ET, eyeing its fourth consecutive session of losses. This weakening of the dollar is directly tied to rising expectations of Fed rate cuts.
The minutes revealed that some participants had considered the “plausible case” for lowering rates as early as the July meeting. This sentiment was echoed by Fed Chair Jerome Powell during the subsequent press conference. The vast majority of participants noted that, if incoming data aligned with expectations, “it would likely be appropriate to ease policy at the next meeting.” The minutes stated, “Participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent.”
Participants also agreed that labor market conditions were coming into better balance and that indicators tracking jobless claims and job separations deserved close attention going forward. The moderation in the labor market is expected to continue contributing to disinflation, particularly in core nonhousing services prices.
The path seems set for a rate cut in September, with Fed funds futures markets assigning a 61.5% probability for a 25-basis-point cut, compared to a 38% chance of a more significant 50-basis-point cut. The probability of a more aggressive half-point rate cut surged during Wednesday’s session, influenced by a downward revision in annual nonfarm payroll estimates through March 2024 and supported by the FOMC minutes.
Wall Street had a minimal reaction to the minutes, with indices broadly holding their session gains. The SPDR S&P 500 ETF Trust (SPY), tracking the S&P 500 Index, was up by 0.4%, mostly unchanged after the minutes. The tech-heavy Nasdaq 100, as monitored through the Invesco QQQ Trust (QQQ), also showed a similar behavior, holding up a 0.5% gain for the day.
Sector-wise, materials extended their gains following the release of the minutes, with the Materials Select Sector SPDR Fund (XLB) rising 1.2% for the session. Gold prices inched higher to $2,515 per ounce, fueling a surge in mining-related industries. The SPDR S&P Metals & Mining ETF (XME) rose 0.4% after the minutes, pushing session gains to 1.9%. The VanEck Gold Miners ETF (GDX) rose by about 0.5%, on track to secure its fifth straight session of gains, and reaching levels last seen in April 2022. In the cryptocurrency market, Bitcoin (BTC/USD) spiked 1.4% in the hour post minutes, extending daily gains to 3%.
