Why you should care about the global rout in government bondsįed Chair Jerome Powell has said the central bank needs to see “below-trend growth” to be assured that inflation is on track to the Fed’s 2% inflation target. The US Treasury Department building is seen in Washington, DC, on January 19, 2023. ![]() That means higher yields lead to higher rates on everything from car loans to the cost of mergers and acquisitions. The bond market’s selloff increases the financial burden for American families and businesses, since US Treasuries are the benchmark used to price debt. The expectation that rates will remain elevated for longer thrust the bond market back into the doldrums, driving US Treasury yields higher and inflicting pain on investors who expected rate cuts sometime this year. “A few participants noted that the pace at which inflation was returning to the committee’s 2% goal would influence their views of the sufficiently restrictive level of the policy rate and how long to keep policy restrictive,” according to the minutes. Some officials said last month that how long they remain elevated hinges on inflation’s trajectory. The central bank’s latest set of economic projections also showed that most Fed officials expect fewer rate cuts next year, confirming investors’ fears that rates could remain higher for longer. Financial markets are pricing in another pause at the Fed’s upcoming October 31-November 1 monetary policy meeting, so that hike could come in December, depending on what economic figures reveal in the coming months. ![]() There is lingering uncertainty over how much the Fed’s 11 rate hikes since March 2022 will weigh on economic activity. ![]() Inflation’s steady descent over the past year, and the job market’s gradual cooldown, gave officials enough reassurance to pause, the minutes showed. The Fed held its key lending rate steady at a 22-year high in September as the central bank aims to assess more economic data to understand how the US economy is responding to previous rate hikes. The Fed hits pause on interest rate hikes while it reviews more data The Federal Reserve Headquarters are pictured on Main Washington, DC.
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