Federal Reserve officials reiterated their message after the central bank’s Sept. 19-20 meeting that interest rates would remain higher for longer than expected, even as they declined to raise interest rates at that policy meeting.
The minutes of the meeting will be released on October 11 and will provide additional insight into the direction in which the majority of Fed officials see the economy heading. Their updated economic forecasts, released on September 20, indicated that they do not expect to cut interest rates later in 2024.
The Fed minutes, released several weeks after each official Federal Open Market Committee meeting, can serve as a policy roadmap. During the September meeting, the Fed decided not to raise the federal funds rate and left the federal funds rate target at 5.25% to 5.50%.
However, that widely expected decision was overshadowed by the release of the committee’s latest summary of economic forecasts, which showed officials were quite optimistic about the U.S. economic outlook. In addition, the SEP showed that it expects unemployment to be lower and economic growth to be better than previously forecast. Their interest rate forecasts suggested that rates would remain above 5% through the end of next year.
However, Fed Chairman Jerome Powell struck a slightly more pessimistic tone at his post-meeting press conference, declining to call a soft economic landing his baseline forecast. Powell also downplayed the latest so-called dot plot forecasts, noting that they were merely a collection of individual interest rate predictions and not a future game plan.
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Given the somewhat muddled message, Fed watchers will expect more clarity from Wednesday’s release. A lot has certainly changed in the last few weeks. Income continues
10-year US Treasury bonds
rose to a 52-week high of 4.8% last week, and the latest payroll data surprised economists by revealing that employers added 336,000 jobs to the U.S. economy in September.
However, the higher yields are contributing to tighter financing conditions, which could help maintain the Fed’s pause on interest rates, several Fed officials said in recent days. “Financial conditions have tightened significantly in recent months. “Much of the tightening was due to movements in longer-term interest rates,” Lorie Logan, president of the Federal Reserve Bank of Dallas, said Monday.
“Higher term premiums lead to higher term interest rates at the same Fed Funds rate setting, all else being equal.” So if term premiums rise, they could pick up some of the economic slowdown for us, so there is less need for additional monetary tightening, to achieve the FOMC’s goals,” Logan said, echoing comments last week by San Francisco Fed President Mary Daly and Fed Vice Chairman for Supervision Michael Barr.
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Analysts at asset management firm Glenmede noted that the Fed’s message of keeping interest rates higher over the longer term in its economic forecasts is helping to move yields. The narrative also weighed on stocks, which endured a challenging September.
More upheaval could be ahead. “Stock and bond markets corrected slightly in the third quarter but may not yet reflect the current economic uncertainty,” Glenmede’s team wrote in a note on Monday.
Fed minutes will be released at 2:00 p.m. ET.
Write to Megan Leonhardt at [email protected]
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