Fed: Inflation risks and policy hold – TD Securities

TD Securities economists Oscar Munoz and Eli Nir highlight that the June FOMC minutes were hawkish, with most participants ready to hike if supply-driven inflation persists. They still project the Fed will keep rates on hold through 2026, as output growth moves sideways and stagflationary risks from the Iran conflict keep inflation elevated while the labor market stabilizes.

Hawkish minutes but steady policy

"The June FOMC minutes last week were hawkish, highlighting inflation risks and showing most participants would support hikes if supply-driven price pressures persist, even with a stable labor market."

"While we continue to see an indefinite hold for the Fed, higher inflation over the next few months could be enough to produce hikes, even if the labor market does not accelerate."

"We expect the Fed to remain on hold over our forecast horizon."

"Inflation should remain high for the rest of the year, and the labor market has stabilized, allowing the FOMC to shift focus to its inflation mandate."

"If the Fed were to move this year, we believe that move is more likely to be a hike than a cut."