The Federal Reserve's meeting minutes reveal policy differences, Citigroup maintains September rate cut expectations
Citi, after analyzing the minutes of the Federal Reserve's June FOMC meeting, maintains its expectation for a rate cut in September. The minutes show that there are differing opinions among committee members, with some officials supporting a rate cut in July, while the majority believe that a rate cut later in 2023 is appropriate. Citi predicts that inflation concerns will ease in September, while worries about the labor market will intensify, prompting the Federal Reserve to continue cutting rates to a range of 3-3.25%. The Vice Chairman of the Federal Reserve emphasized the importance of liquidity tools, and Chairman Powell stated that the monetary policy framework will be reassessed
According to the Zhitong Finance APP, Citibank maintains its expectation of a possible interest rate cut in September after analyzing the minutes of the Federal Reserve's June Federal Open Market Committee (FOMC) meeting.
Data shows that the U.S. Treasury market, tracked by the iShares 20+ Year Treasury Bond ETF, is currently priced at $86.93, with a year-to-date increase of only 0.64%, reflecting this expectation.
The minutes indicate a divergence of opinions among committee members: a minority of attendees may support a rate cut as early as July, while some officials lean towards not cutting rates this year. However, most members still believe that resuming rate cuts later in 2023 is appropriate. This uncertainty is reflected in the TLT fund's low beta value of 0.49, indicating price volatility.
Citibank points out that the current unemployment rate of 4.1% makes a July rate cut "extremely unlikely" and emphasizes the slightly hawkish tone in the minutes—despite inflation data being below expectations, more officials expressed concerns about the persistent inflation risks posed by tariffs compared to May. The analysis also shows that some officials are increasingly worried about a weak labor market, while others may be encouraged by the recent decline in inflation expectations.
Citibank predicts that by September, inflation concerns will further dissipate, while worries about the labor market will intensify, prompting the Federal Reserve to continue cutting rates in September and at subsequent meetings until rates fall to the range of 3-3.25%.
The FOMC's May meeting minutes indicate that, amid rising tariffs and economic uncertainty, the Federal Reserve is maintaining a cautious stance. While it is attentive to inflation and labor market risks, it is taking a wait-and-see approach to policy adjustments.
Moody's has downgraded the U.S. sovereign credit rating following S&P and Fitch, but JPMorgan analysts believe that, given that bond index providers have already adjusted classifications in advance, the impact on financial markets will be limited.
Citibank's interest rate strategists also note that, despite the grim fiscal outlook, the downgrade is unlikely to significantly affect foreign demand for U.S. Treasuries. Federal Reserve Vice Chairman Philip Jefferson emphasized the importance of central bank liquidity tools at the 2025 Financial Markets Conference.
Federal Reserve Chairman Jerome Powell stated that, given recent inflation performance and potential supply shocks, officials are reassessing the monetary policy framework and may adjust the strategic stance on employment and inflation targets
