Against the backdrop of continuous economic and labor market growth, as well as inflation still far above the central bank's target, the Federal Reserve once again maintained stable benchmark interest rates on Wednesday.
The Federal Reserve's interest rate setting group unanimously agreed to maintain the key federal funds rate in the target range of 5.25% to 5.5%, which has been the level since July and is widely expected. This is the second consecutive meeting of the Federal Open Market Committee, following 11 interest rate hikes (including 4 in 2023).
After the announcement of the Federal Reserve resolution, spot gold prices slightly increased in the short term, with little overall volatility. In other markets, the stock market remains optimistic, with the Standard&Poor's 500 Index rising 0.4%, the Nasdaq Composite Index rising 0.7%, and the Dow Index rising 0.3%. The yield of US treasury bond bonds fell, and the yield of 10-year treasury bond fell by about 8 basis points to 4.795%.
The Federal Reserve's decision includes raising the committee's overall assessment of the economy.
The post meeting statement stated that "economic activity grew strongly in the third quarter," while the September statement stated that the economy was expanding at a "steady pace. The statement also pointed out that employment growth "has slowed down since earlier this year, but remains strong".
The annual growth rate of GDP in the third quarter was 4.9%, even stronger than expected. The total growth of non farm employment in September was 336000, far exceeding Wall Street expectations.
Apart from stating that both financial and credit conditions have tightened, there have been almost no other changes in the statement. After the soaring yield of US treasury bond bonds caused Wall Street's concern, the word "finance" was added to the word. The statement continues to state that the committee is still "determining the extent of additional policy tightening" to achieve its goals. The committee will continue to evaluate more information and its impact on monetary policy, "the statement said
The background of Wednesday's decision to remain unchanged is that inflation has slowed down compared to the rapid growth in 2022, and despite multiple interest rate hikes, the labor market has unexpectedly become resilient. The purpose of raising interest rates is to alleviate economic growth and restore balance between supply and demand in the labor market. According to data released by the Ministry of Labor earlier Wednesday, each available worker can find 1.5 available job positions in September.
According to the latest reading of the personal consumption expenditure price index favored by the Federal Reserve, the current core inflation rate is 3.7%.
Although this number has steadily declined this year, it is still far above the Federal Reserve's annual target of 2%.
The post meeting statement stated that despite interest rate hikes, the Federal Reserve still believes that the economy remains strong, which in itself may prompt policymakers to adopt a long-term tightening stance.
In recent days, the slogan of "long-term rise" has become the central theme of the Federal Reserve's future direction. Although several officials have stated that when the Federal Reserve evaluated the impact of previous interest rate hikes, they believed that interest rates could remain at their current levels, almost no one has indicated that they are considering cutting rates soon. According to data from Zhishang Exchange, market pricing suggests that the first rate cut may occur around June 2024.
Restrictive stance is a factor contributing to the surge in bond yields.
With the market's analysis of the future, the yield of US treasury bond bonds has soared to the highest level since the outbreak of the financial crisis in 2007. The yield and price move in opposite directions, so the rise of the former reflects the weakening of investors' interest in US treasury bond bonds, which are generally considered to be the largest and most liquid market in the world.
The surge in yields is seen as a byproduct of various factors, including stronger than expected economic growth, stubborn high inflation, hawkish Federal Reserve, and bond investors demanding higher yields in exchange for the "term premium" of holding longer term bond risks and increasing fixed income.
As the government seeks to finance its huge debt burden, people are also worried about the issuance of treasury bond. This week, the department announced that it will auction $776 billion in debt in the third quarter and will auction $112 billion in three separate auctions next week.
Federal Reserve Chairman Jerome Powell will deliver a speech to the media at 2:30 pm Eastern Time, expected to discuss rising yields and his views on economic growth, labor market, and inflation. During his recent appearance in New York, Powell stated that he believes the economy may need to further slow down in order to reduce inflation.
Most forecasters expect economic growth to slow down in the future.
The forecast released by the US Treasury earlier this week showed that economic growth may slow to 0.7% in the fourth quarter of 2024, compared to only 1% for the entire year. The forecast released by the Federal Reserve in September shows that GDP growth is expected to be 1.5% in 2024.
