iCapital's Dan Suzuki Talks Fed Minutes

**SPEAKER_2** (0:05)
The Fed Minutes, showing a few officials, saw a case for hiking interest rates at their June meeting, pointing to inflation concerns. The Minutes saying, quote, many participants noted that ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology products and electricity. Let's get more with Michael McKee, Bloomberg's international economics and policy correspondent. Don't want to pull just one piece of the Minutes out, Michael, and make it all about that. Essentially, as Michael Faroli said, these were pretty milk toast minutes, right? It could be up next or it could be down next in terms of rates.

**Michael McKee** (0:39)
Exactly, not really down, but on hold for quite some time. The minutes kind of are like Groundhog Day, because it was June 17th that the president signed the Memorandum of Understanding with Iran. And so the Fed was confronted with the fact that maybe the war would end and inflation would go down. And if that were the case, they looked at a scenario where they might stay on hold. But if inflation continued to rise and the jobless rates stayed down, they might raise rates. And they added, as you pointed out, AI as an inflation worry to tariffs and war. So the balance of risks tilted toward prices.
There's also a bit of a worse effect in it all, in that the minutes were about a thousand words shorter, maybe 15 to 17% shorter. Participants' views were notably more concise, according to our ChatGPT analysis of the minutes. And policy discussions and the staff reviews of the economy and markets were also condensed. So you didn't get a real firm view from the minutes or from the truncated minutes on what the Fed is going to do, but that's because the Fed didn't know. And now we're back at war and oil prices are going up, gasoline prices will probably follow, and we don't know what is going to happen. So stay tuned. We do have next Tuesday, CPI in the morning, and then Fed Chair Warsh is testifying to the House Financial Services Committee. So that will be a big day to try to make more progress for the markets on what they think is going to happen.

**SPEAKER_4** (2:08)
We'll see if we get any of that. We'll certainly get, again, his testimony, but if he gives us any hints. Michael, thank you so much for joining us. Bloomberg's Michael McKee. And let's continue the conversation with Dan Suzuki, Global Investment Strategist at iCapital. Dan, great to see you.
I know in your outlook, you and the team, you think cuts are more likely than hikes, but your base case is essentially no move. That's not necessarily what the market is pricing. It's pricing in that hikes are more likely. So what are we missing?

**Dan Suzuki** (2:34)
Yeah, well, I don't think you're missing anything, Dan, but I do think that the market is missing something. I mean, I think the market is basically living in the world of two months ago, as was the Fed minutes, which is like living in a different world. If you think about the Fed minutes, that basically came out, that meeting happened hours before the MOU was signed. So the war was still effectively going on. Gasoline prices were above $4, and job growth was running about 170,000 jobs per month. If you fast forward to today, yes, there's fits and starts, but I think more likely, the peace deal will hold. You'll continue to see more passage go through the straight-of-home moves. Gasoline prices have come down, and job growth is closer to 50,000. So it's just a different world that we're living. And if you take this world that we live in today, and you look at what the minutes said about what the scenarios that they're talking about, I think you're more likely to see, you know, cuts than you are hikes, because they said if inflation comes down, because they ran, pressure goes away, and you start to see inflation come toward the 2% target, then you're more likely to see a scenario where you're on hold, or you're more or going to cut, and that's kind of what we laid out in the report.

**SPEAKER_2** (3:44)
So when does the market see this, Dan? Because right now we have yields going higher. I mean, right now the 30-year yield is still at 507

**Dan Suzuki** (3:51)
Yeah. I think the markets will come around to this when inflation comes around. The problem for the markets is inflation is a lagging indicator. So if you focus on the fact that gasoline prices are coming down, albeit sort of the move on the news overnight, gasoline prices will probably be trending lower, overall energy prices will be trending lower. They noted in the minutes actually that housing pressures will continue to be a drag on inflation. So if you get that dynamic playing out through markets, if you look at some sort of real-time metrics of inflation, they're telling you that there's probably more downside to where those numbers are going to go.