FOMC Minutes Preview: Likely Hawkish, but Not as Aggressive as a Direct Rate-Hike Signal
The FOMC meeting minutes, scheduled to be released on Wednesday in the United States or early Thursday morning in Indonesia, will be a major focus for the market. Investors will be watching closely because this is the first set of minutes under Kevin Warsh’s leadership. At the June 16–17 meeting, the Federal Reserve kept its benchmark interest rate unchanged in the 3.50%–3.75% range, but the tone of its policy communication became more assertive on inflation. The Fed stated that economic activity remained solid, productivity and capital investment were strong, while inflation was still above the 2% target and the central bank remained committed to restoring price stability.
The main prediction is that the upcoming FOMC Minutes will likely lean mildly to moderately hawkish, rather than fully dovish. The reason is that the Fed’s latest economic projections still show inflation as the main concern. In the June Summary of Economic Projections, the 2026 PCE inflation forecast was raised to 3.6% from 2.7% in March, while the core PCE inflation forecast was lifted to 3.3% from 2.7%. The median projection for the federal funds rate at the end of 2026 also increased to 3.8%, compared with 3.4% in the previous projection. This indicates that, internally, the Fed is beginning to leave room for interest rates to remain higher for longer, or even rise further if inflation does not ease.
However, the minutes are not expected to sound extremely hawkish, such as giving a direct signal for an immediate rate hike. Kevin Warsh has emphasized that the Fed does not want to rely too much on forward guidance, because future policy decisions will depend more heavily on incoming data. Warsh also said that half of his colleagues saw interest rates staying at current levels or moving lower by the end of the year, while the other half believed rates may need to move higher. This means the market may read the minutes as a sign that the Fed is not fully united, although the overall policy bias still leans more toward tightening than easing.
From the economic data side, inflation still supports a hawkish stance. The May PCE report showed that the PCE price index rose 0.4% month-on-month and 4.1% year-on-year, while core PCE increased 0.3% month-on-month and 3.4% year-on-year. This is important because PCE is the Fed’s preferred inflation gauge. As long as core PCE remains well above the 2% target, the Fed has limited room to sound dovish.
Labor market data, on the other hand, has started to show signs of cooling. Nonfarm Payrolls in June increased by only 57,000, below expectations of 110,000, while April and May figures were revised down by a combined 74,000. However, the unemployment rate fell to 4.2%, although this was partly caused by a decline in labor force participation. Average hourly earnings also remained up 3.5% year-on-year. From the Fed’s perspective, the labor market may be weakening, but not weak enough to force a clear shift toward a dovish stance.
The ISM Services data also gave a mixed signal. The U.S. services index slipped slightly to 54.0 from 54.5, but it remained above the 50 level, meaning the services sector was still expanding. The prices component fell to 67.7 from 71.3, but the level remained relatively high. Meanwhile, the employment component returned to expansion at 51.2. This strengthens the view that the U.S. economy has not slowed sharply, allowing the Fed to maintain a cautious stance against inflation.
Comments from Fed officials also support a hawkish bias. Fed Governor Christopher Waller said the balance of risks had shifted toward higher inflation, as the labor market appeared more stable while inflation was rising again. In a separate speech, Waller also said forward guidance can be useful, but it may limit policy flexibility if it becomes too rigid. This aligns with Warsh’s preference for a more flexible Fed that avoids giving too many strong signals about the future path of interest rates.
For gold, a hawkish scenario would likely create downward pressure. If the minutes show that most Fed officials are increasingly worried about inflation, discuss the possibility of further rate hikes, or emphasize that current policy may not be restrictive enough, the U.S. dollar and Treasury yields could strengthen. In this scenario, spot gold, which was recently around US$4,126 per troy ounce, could fall toward the US$4,100–US$4,080 area. If selling pressure intensifies and the market becomes more convinced that the Fed could raise rates in September, gold may risk a deeper decline toward US$4,050–US$4,020.
On the other hand, a dovish scenario would emerge if the minutes show that many Fed officials are more concerned about labor market weakness, believe the rise in energy-driven inflation is temporary, and see no urgent need to raise interest rates further. If this kind of narrative appears, gold could strengthen as expectations for further rate hikes decline. Under a dovish scenario, gold may have room to rise toward US$4,170–US$4,200. If it manages to break above the recent two-week high near US$4,202, the next upside target could open toward US$4,230–US$4,250.
In conclusion, the most reasonable prediction for the upcoming FOMC Minutes is a mildly hawkish tone, with the main focus on inflation that remains elevated, the Fed’s commitment to bring inflation back to 2%, and policymakers’ reluctance to signal any premature easing. However, because the latest labor market data has started to weaken, the Fed is unlikely to deliver an extremely hawkish message. For gold, the initial risk still leans to the downside if the minutes confirm inflation concerns, but the decline may be limited as long as the market sees labor market weakness as a reason for the Fed to delay its next rate hike.
Educational note: this is not a trading recommendation, but a market scenario based on economic data. Price areas may change quickly depending on the reaction of the U.S. dollar, U.S. Treasury yields, and follow-up comments from Fed officials after the minutes are released.
Source : Newsmaker.id
