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This week’s FOMC minutes data could be crucial for the markets, particularly those connected to gold and forex. There have been growing doubts about whether the Fed will actually implement a rate cut in December. The minutes could provide important clarity on the consensus within the FOMC and what aspects of the economy the Fed is prioritizing. Amid the lack of official economic data due to the US government shutdown, analysts are struggling to find signposts to predict what will happen with interest rates next month.

Four weeks ago, the market was predicting more than a 90% chance of a third rate cut in December. Since then, the odds have declined to just over 40%. While traders have focused on headlines around the government reopening, there have been growing signs of a deep divide within the FOMC between hawks and doves. Recently, a few Fed officials have given signs that they won’t support a cut in December. But that doesn’t mean a cut is all but discounted just yet
 

Waning Gold and Market Optimism

Markets have been taking their cues from public comments from Fed officials over the last week. As mentioned previously, the market did not change its outlook for the Fed following the reopening of the US government. This allowed gold to move higher and silver prices to spike to a new record high. However, since the start of the week, the trend has reversed, and this can be attributed mainly to recent commentary by just a couple of Fed officials.

The recent downward trend was bolstered by comments from two voting FOMC members last week, Susan Collins and Raphael Bostic. They both voted to cut rates in the previous two meetings, and both suggested they were hesitant to do so for a third time in December. This set off alarm bells amid traders. The Fed hasn’t had access to the latest official CPI data, and might be worried that consumer prices are rising. Or, at least, in the absence of evidence that consumer prices are falling despite tariffs, they might opt to wait a month before cutting rates.
 

It’s a Numbers Game

The comments from the two FOMC members are significant, and also call back to a more hawkish Fed Chair after the last policy meeting. But there are 12 members on the committee, and most have not given comments recently. It is possible that the majority of Fed members are still willing to proceed with a rate cut. The minutes of the FOMC will provide a snapshot of what all the members think, and could give a better understanding of the hawkish vs dovish voters.

The shift in pricing for a rate cut in the futures markets suggests that traders are positioning for a more hawkish Fed following the release of the minutes. This means that if the consensus from the minutes is more dovish, then markets could recover, particularly precious metals.
 

What to Look Out For

The primary debate between doves and hawks centers on whether to prioritize the job market or inflation. Since the government shutdown, there has been a bias towards the labor market, with more data on jobs being released than on consumer prices. That information gap around inflation has led traders to think that the Fed may be more concerned about inflation heading into the December meeting.

To understand whether the minutes are inclined towards hawkishness or dovishness, traders will likely be looking for whether the emphasis is on jobs or inflation. If more FOMC members express concern about rising consumer prices, the market will likely interpret this as a hawkish stance. But if the majority of the Fed officials are worried about the economy and job market, then the market could start to price back in a December rate cut.

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