BNY’s John Velis and David Tam note that recent FOMC minutes and comments from Fed Governor Waller point to higher two‑way risk for US interest rates. They have dropped their previous forecast for two rate cuts in 2026 and now expect no policy change unless Oil flows resume through the Strait of Hormuz relatively soon.

FOMC minutes and Waller turn tone

"The recently released minutes of the May FOMC indicate a more hawkish debate than we expected, more so than was indicated by a surprising three dissents regarding the policy orientation of the FOMC statement."

"Fed Governor Waller – an early dissenter in July 2025 citing his concern for the labor market, and who dissented again as recently as January 2026 – argued on the record at an appearance last Friday that rates are just as likely to rise as fall, expressing concerns about short-term inflation expectations bleeding into longer-term ones."

"As readers know, last week we dropped our two-cut outlook for the year and now expect no change in policy unless the Strait of Hormuz reopens relatively soon – sometime in the early- to mid-summer."

"However, we wouldn’t be surprised to see rate cuts back on the agenda if oil does start to flow through the Persian Gulf."

"Thursday’s PCE inflation report is likely to show – unsurprisingly – accelerating consumer prices, reinforcing the Fed’s hawkish lean."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)