TD Securities expects the April FOMC minutes to show how many officials supported removing the statement’s easing bias, and how split the committee was after hawkish dissents. The team links this to recent comments from Fed officials.
The note states that “many” participants likely backed dropping the easing bias, and that three voting members dissented. It adds that stronger CPI and payrolls data released after the April meeting has pushed momentum towards a more hawkish stance.
June Meeting Bias Shift
TD Securities says it expects a formal change in bias at the June meeting, based on the level of support seen in April and subsequent economic data. The firm also notes that the April minutes may be less current because they pre-date the latest CPI and payrolls releases.
The report adds that attention on Wednesday will also include the 20-year US bond auction in the afternoon. It says the auction will test market demand for longer-dated bonds.
The upcoming minutes from the April FOMC meeting are poised to confirm a hawkish shift within the committee, revealing how many members already favored removing the bias toward rate cuts. This change in tone is supported by recent data showing persistent economic strength. For instance, the April jobs report showed the economy added 295,000 positions, far exceeding the 210,000 consensus estimate.
For traders, this means we should anticipate higher short-term interest rates staying for longer than previously expected. Positions that benefit from rising yields, like selling SOFR futures or buying interest rate swap floors, should be considered. The market is now pricing in less than one 25-basis-point rate cut for all of 2026, a significant change from the three cuts anticipated just two months ago.
USD Strength Trade View
This environment is very bullish for the US dollar, as higher relative interest rates attract foreign capital. We believe traders should consider buying call options on the U.S. Dollar Index (DXY) to capitalize on this strength. The growing divergence in policy between a hawkish Fed and more dovish central banks in Europe and Japan supports this view.
Conversely, the prospect of sustained high rates presents a headwind for equities, potentially increasing market volatility. We see value in using derivatives for protection, such as buying put options on the S&P 500 or Nasdaq 100 indices. The VIX index, a key measure of expected volatility, has already climbed from its lows near 12 earlier this year to over 15, suggesting the market is growing more anxious.
This entire setup feels similar to what we saw in early 2022, right before the Federal Reserve began its most aggressive hiking cycle in decades. The 20-year bond auction this week will be a critical indicator of the market’s appetite for duration risk. A weak result would signal that investors demand higher yields, further validating the hawkish outlook.
