The highly anticipated release of the Federal Open Market Committee’s April 26-27 Meeting Minutes was met with surprise after the discussion indicated the door was wide open for June action on interest rates. Although the Central Bank refrained from hiking rates during the prior meeting, Federal Reserve officials are suggesting the possibility of a couple of rate hikes this year, raising speculation among investors that action will come sooner rather than later.  However, despite dropping many hints about the outlook for monetary policy, there are several factors that could yet derail the ambitious tightening plans.

The Market’s Read and Reaction

One of the key takeaways from the minutes was the more hawkish bias of the committee as evidenced by the language used to describe the sentiment of officials. According to the minutes, “most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the committee’s 2.00% percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June.”

With the consensus GDP prediction currently just north of 2.00%, a rate hike is definitely in the upcoming meeting not yet out of the question. The ripple effect was a plunge in equities, as the Dow Jones Industrial Average and S&P 500 giving back all of the session’s earlier gains. The Nasdaq Composite managed to outperform peers, closing out the session higher after climbing 0.50% with the technology, financial, and healthcare sectors leading the benchmark higher. Precious metals reacted negatively the Minutes, with gold slipping -1.36% after the minutes were released.

Oil prices reversed course, with the June WTI crude futures contract falling -0.30% to settle at $48.19 a barrel following a higher than anticipated build to inventories. Investors flocked to the safety of Treasuries with the 10-year adding 1.85% while the DXY Dollar Index jumped approximately 0.50% after the distribution hit the tapes. These are clear cut signs that market participants have renewed faith that the Federal Reserve may actually continue to normalize monetary policy, especially as the probability of a June rate hike climbs to 34.00%. The main message from traders is that the FOMC is good news for the economy and bad news for stocks.