“Most participants believe that another increase in the federal funds rate at a future meeting would be appropriate, while some believe that further increases are unlikely to be warranted,” the minutes of the September Federal Open Market Committee (FOMC) meeting said.
The content of the minutes of the September meeting did not raise any major controversy in the financial markets. Claims for another 25-point increase in loan costs have already been included in September’s Fed points. On September 20, the Federal Open Market Committee left the federal funds rate range unchanged at 5.25% to 5.50% – the highest level in 22 years.
– All participants agreed that policy should remain restrained until the committee is satisfied that inflation is on a sustainable path toward its target – and the “Higher for Longer” mantra appears to have broad support within the FOMC. There were also other “hawkish” statements that would dash hopes for an imminent cut in US interest rates.
However, “a few” policymakers concluded that interest rates were probably close to their peak. The focus of the Committee’s attention should now not be on how high interest rates will rise, but rather on how long restrictive monetary policy should be maintained. There was also general agreement on the desirability of continuing “quantitative tightening” of monetary policy.
However, the vast majority of market participants do not believe that the Fed will decide to increase interest rates again. Fed rate futures (FFR) suggest that chance is only 26%, according to FedWatch data. By comparison, just a month ago, the probability of raising interest rates again this year was estimated at around 40%. The first reduction of the FFR is expected only in June 2024.
The debt market is also skeptical about further increases in US interest rates. On Thursday, the yield on two-year Treasury bonds was around 5% and was at a similar level as in previous weeks. Yields on Treasury bills remained practically unchanged. However, the yield on 10-year US government bonds fell for the third day in a row and fell to 4.59%. Just a few days ago, the stock paid nearly 4.90% — the highest level since 2007.
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