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宏观5月20日 · Morgan Stanley

April FOMC Minutes Signal Shift to Two-Sided Guidance, Inflation Risks Delay Rate Cut Hopes

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April FOMC Minutes Signal Shift to Two-Sided Guidance, Inflation Risks Delay Rate Cut Hopes

Core Conclusion

The April FOMC minutes mark a clear pivot: the Committee’s reaction function has become two-sided. A majority of participants now acknowledge that policy rate firming could be appropriate if inflation stays persistently above target. To reflect this risk, many preferred replacing the easing bias with neutral guidance pointing to both upside and downside risks. This shift reduces the probability of near-term rate cuts and raises the bar for the Fed to act on disinflation or labor market weakness alone. Morgan Stanley’s baseline sees 2 cuts in 2027 as inflation slows, but the dominant risk is that inflation pressures stay firm, sidelining the Fed entirely through 2026.

Evidence Chain

1. Reaction Function Becomes Symmetric

The minutes explicitly state that a majority of participants “highlighted that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.” This is a material departure from prior guidance, which leaned toward cuts if disinflation resumed. Many participants therefore preferred removing the easing bias language from the post-meeting statement. The vote itself was 9–3 to retain the current language, but the underlying sentiment is clearly more hawkish.

Investment implication: Markets should price a lower probability of cuts in 2026. The Fed’s neutral stance means any improvement in inflation data will be met with skepticism until a sustained path emerges.

2. Inflation Pressures Intensify Across Multiple Channels

Staff estimated March headline PCE at 3.5% and core at 3.2%, driven by energy, tariffs, supply disruptions, and broader price pressures. The “vast majority” of participants saw increased risk that inflation would take longer to return to 2%. Key drivers cited: high oil prices from the Middle East conflict, tariff pass-through (expected to diminish over the year, but still elevated), and AI-related investment demand raising input costs across industries. The Fed’s risk case mirrors Morgan Stanley’s “Oil price risk premium” scenario: prolonged high oil prices could generate second-round effects on core inflation bigger than history suggests.

Investment implication: Inflation-linked assets (TIPS, commodities) retain a strategic bid. The Fed’s hawkish pivot suggests short-term rates will remain elevated, flattening the yield curve.

3. Labor Market Stabilized but Downside Risks Tilt

Participants viewed the labor market as “stabilized,” not strong. Low payroll growth was seen as consistent with slow labor force growth rather than deterioration. Yet most judged employment risks as tilted to the downside. Concerns included concentration of job gains in few sectors, declining survey measures of job availability, and modest wage growth. Immigration policy tightening further constrains labor supply.

Investment implication: A weakening labor market could eventually trigger cuts, but for now the Fed sees more inflation risk than employment risk. The breakeven unemployment rate for a cut remains high.

4. Real Activity Supported by AI, but Geopolitical Uncertainty Rising

Participants expected solid GDP growth driven by AI investment, productivity gains, supportive financial conditions, and policy dynamics. Oil price rises were noted to have a muted impact relative to history due to stronger domestic production and lower oil intensity. However, the Middle East conflict adds meaningful uncertainty, with caution among business contacts.

Investment implication: Growth resilience limits the urgency to ease. A recession scenario is not the base case, but the combination of sticky inflation and geopolitical shocks makes the macro outlook more volatile.

Key Risks & Divergences

  • Inflation persistence dominates: The risk that inflation stays firmly above 2% through 2026 is the central threat to rate cut expectations. The Fed’s own majority now flags this scenario as likely warranting tightening, not staying on hold.
  • Geopolitical escalation: A prolonged or expanded Middle East conflict could keep oil prices elevated longer than expected, embedding second-round inflation effects that delay disinflation.
  • Labor market surprise: If payrolls deteriorate sharply and quickly, the Fed could pivot back to easing bias. But the minutes suggest a high bar: most participants view low payrolls as structural, not cyclical.
  • Market repricing risk: Current market pricing likely still embeds some probability of cuts in H2 2026. A hawkish repricing toward no cuts or a rate hike could trigger risk asset sell-offs and steepen the curve.

Macro Transmission & Investment Implications

  • Fed expectations: The two-sided guidance raises the probability of a prolonged hold at 3.50–3.75%. The next move is more likely a hike than a cut unless inflation markedly decelerates or labor markets crack.
  • Rates: Front-end yields will remain elevated; curve flattening may reverse if the market prices eventual cuts later. Use 2-year swaps to express hawkish view.
  • FX: USD may strengthen on relative rate advantage, especially if other central banks ease faster.
  • Commodities: Energy and industrial metals benefit from inflation persistence and AI-driven demand. TIPS breakevens should remain elevated.
  • Equities: Growth-sensitive sectors (tech, AI infrastructure) have a tailwind from strong capex, but high discount rates cap multiples. Defensive and value-linked exposures offer relative safety.

The April minutes confirm the Fed is no longer one-sided dovish. Investors should reduce reliance on near-term rate cuts and position for a higher-for-longer regime where inflation risk dominates the policy narrative.