FOMC Minutes Reveal a Hawkish Fed While Nvidia Impresses Again

Rates rise on FOMC minutes while Nvidia posts strong Q2 earnings. The swap curve flattened today as the short end of the curve rose 4-5bps while the long end was little changed. The move largely stemmed from FOMC minutes, which showed a patient Fed mindset toward monetary easing. Meanwhile, the S&P500, DJIA, and NASDAQ closed 0.18%-0.51% lower today ahead of NVDA’s after-hours earnings results. NVDA posted stronger than expected Q2 revenue ($28B versus the $26.8B forecast) while also boosting its quarterly dividend by 150% and announcing a 10-to-1 stock split. This was NVDA’s most profitable and highest sales quarter ever, leading the way to shares jumping 4% after the bell.

May FOMC minutes send more hawkish signals. As many expected, today’s FOMC minutes offered more detail around the higher-for-longer positioning that has been road-showed by a slate of Fed members in recent days. Interestingly, the minutes stated, “Although monetary policy was seen as restrictive, many participants commented on their uncertainty about the degree of restrictiveness,” and went further to state, “Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.” The minutes also said that increased economic efficiencies and technological innovations could raise growth on a sustained basis without raising inflation, which could provide a clearer path toward higher neutral rates.

UK inflation was higher than expected in April. Today’s UK consumer price index (CPI) data showed that price growth slowed less than forecasted in April. Year-over-year CPI rose +3.9% on a core basis and +2.3% headline versus estimates of +3.6% and +2.1%, respectively. Services inflation, labelled previously by BOE Governor Andrew Bailey as “more persistent,” slowed only 0.1% to +5.9% versus the +5.4% forecast. The data materially impacted projections for upcoming rate cuts, effectively eliminating the potential of a June cut and implying a ~50% probability of a rate cut in August.