Stocks Are at Risk as the Fed Fights Markets on Rates: FOMC Minutes
Stocks Are at Risk as the Fed Fights Markets on Rates: FOMC Minutes
By:Ilya Spivak
Will stocks stumble as the Fed looks resigned to ignore market calls for rate cuts?
- Minutes from June FOMC meeting are likely to follow a familiar Fed script.
- Rate and bond markets are telling the central bank to get on with rate cuts.
- Stocks may stumble as tariff-linked dithering increasingly threatens growth.
The markets and the Federal Reserve have been at odds on where interest rates are going since the US central bank updated its benchmark outlook for the path ahead last month. This week, minutes from that meeting of the policy-steering Federal Open Market Committee (FOMC) will offer a view into officials thinking, and test traders’ tolerance.
The mantra from Fed Chair Jerome Powell and company has hardly changed since March. They came into 2025 intending to cut rates by 50 basis points (bps) this year and in 2026. The Trump administration’s rushed rollout of an expansive tariff regime has clouded the way forward, putting the brakes on policy action and locking the Fed in wait-and-see mode.
June FOMC meeting minutes: “play it again, Jay”
The Fed is reasoning that tariffs have historically buoyed inflation and weighed against economic growth, and by extension job creation. That is a nightmare for a central bank whose mandate is maximum employment with price stability because it demands conflicting policy actions: weak growth asks for stimulus, while a price shock demands higher rates.
Where the current episode will land on the spectrum of outcomes is unclear. However, with inflation only a hair above 2% and the unemployment rate low relative to historical norms at just a bit above 4%, the Fed reckons it has the luxury of time to hold rates and wait for the economy to tell them whish side of the mandate to prioritize.
Will stocks buckle as the Fed ignores bond market warnings?
For their part, the markets do not share officials’ confusion about where policy needs to go. Inflation expectations priced into Treasury bond prices – so-called “breakeven rates” – have been trending lower since the beginning of the year. Fed Funds interest rate futures price in 66bps in cuts next year, against the Fed’s June update calling for just 25bps.
This suggests that traders are looking through whatever up-leveling in prices may come from the tariffs to the negative implications that this will imply for consumption, and thereby for growth at large. This may mean that market sentiment will sour as the Fed’s dithering continues, putting stock markets at risk.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts #Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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