US Markets
Wednesday, November 1st, 2023 6:15 pm EDT
Key Points
- Federal Reserve Keeps Interest Rates Steady: The Federal Reserve, in a widely expected move, maintained its benchmark interest rates within a target range of 5.25%-5.5%, marking the second consecutive meeting without changes following a series of 11 rate hikes, including four in 2023.
- Strong Economic Activity and Resilient Labor Market: The Fed’s post-meeting statement noted that “economic activity expanded at a strong pace in the third quarter,” an upgrade from the previous assessment of a “solid pace.” The labor market has also shown resilience, with employment gains remaining strong.
- Inflation and “Higher-for-Longer” Theme: Despite a slowing inflation rate, core inflation remains at 3.7%, well above the Fed’s 2% target. The Fed’s stance is increasingly described as “higher-for-longer,” suggesting an extended period of maintaining interest rates rather than considering cuts. This policy has contributed to surging bond yields, reaching levels not seen since 2007, amid concerns about economic growth, inflation, and Treasury issuance to finance government debt. Treasury yields and prices have moved inversely, reflecting waning investor interest in Treasurys. Fed Chair Jerome Powell is expected to address these rising yields, along with his views on growth, the labor market, and inflation.
The Federal Reserve held the benchmark interest rates steady amid an expanding economy and elevated inflation, maintaining the rate in a target range of 5.25%-5.5%. This decision marked the second consecutive meeting where the rate-setting group chose not to adjust rates, following a series of 11 rate hikes, including four in 2023.
The post-meeting statement noted the strong economic expansion in the third quarter, citing a 4.9% annualized GDP growth and moderated yet resilient employment gains. The committee remained concerned about financial and credit conditions tightening and is still evaluating the necessity of additional policy firming to achieve its goals.
Inflation, despite slowing from the rapid pace of 2022, remains notably higher than the Fed’s 2% annual target, with core inflation at 3.7%. Despite the Fed’s tightening stance, officials remain committed to assessing the impact of previous rate hikes and have not signaled any immediate consideration for rate cuts. Market indications suggest the possibility of a rate cut around June 2024.
The bond market has witnessed surging yields to levels not seen since the financial crisis in 2007, propelled by factors such as robust economic growth, persistent inflation, a hawkish Fed, and increased demand for higher yields among bond investors holding longer-duration fixed income. Concerns over Treasury issuance to finance a significant debt load have also contributed to this surge in yields.
Federal Reserve Chair Jerome Powell, addressing the media, is anticipated to discuss the escalating yields and share his insights on growth, the labor market, and inflation. Powell previously suggested that the economy might need to slow down further to combat inflation. Forecasts indicate a potential decline in economic growth ahead, with predictions estimating a slowdown to 0.7% in the fourth quarter and just 1% for the full year in 2024. This forecast aligns with the Fed’s own projections released in September, expecting GDP growth at 1.5% in 2024.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/01/fed-meeting-november-2023-.html
