09.07.2026 - Fed Minutes: no cuts
The Federal Reserve published the minutes from its latest FOMC meeting yesterday, reinforcing a more hawkish stance than many investors had anticipated.
The FOMC unanimously voted last month to keep the federal funds rate unchanged at 3.50%–3.75%. According to the minutes, policymakers do not expect interest rate cuts before Q2 2027.
The Fed continues to point to stubborn inflation as its primary concern. Following last month's meeting, nine of the eighteen FOMC members indicated they would support at least one additional rate hike this year if inflation remains above the Fed's 2% target.
A majority of officials also acknowledged that further tightening could become appropriate should inflation prove persistent.
Until yesterday's release, financial markets had largely priced out any further rate hikes in 2026.
Following the renewed escalation in the Middle East and the sharp jump in oil prices during last two days, expectations for another Fed rate hike have started to re-emerge, although this view is still far from being fully reflected across financial markets.
Markets:
Equities: US equities managed to recover most of yesterday's losses, while other major markets remained under pressure.
Bonds: Government bond yields remained elevated; US 10y yield held around 4.58%, Japan 10y yield at 2.88%
Commodities: Oil prices gave back part of yesterday's sharp gains, while precious metals recovered
Currencies: USD almost unchanged
Cryptos: stabilized - Bitcoin trading between USD 62-63k
Volatility: VIX declined back below 17
My View: Investors continue to ignore both the Fed's message and the recent inflation data. The prevailing market narrative still assumes that everything will work out just fine.
The key question is when the repricing across asset classes will begin.
Bond investors have already started to react. Higher yields suggest that fixed-income markets are taking inflation risks and the Fed's increasingly hawkish tone more seriously.
Equity investors, however, continue to dismiss almost every negative headline. So far, they have been right. Major stock indices remain close to record highs, and every setback has been followed by a rapid V-shaped recovery.
Many investors have never experienced a prolonged bear market or significant portfolio losses. The past years have reinforced the belief that every dip should simply be bought.
The question is not whether markets can continue to ignore bad news for a while longer, they clearly can.
The more important question is: How long will this continue? And at what point will bad news once again be treated as bad news?
That shift in sentiment, whenever it comes, could trigger a much broader repricing than many investors currently expect.
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