- Federal Reserve policymakers reached a consensus that policy should remain restrictive for some time to cool inflation and noted that risks have become more balanced.
- The minutes indicate that Fed officials are moving towards a more symmetric policy outlook where the risk of over-tightening is weighed against inflation running above 2%.
- A projected higher interest rate peak combined with a slower pace of rate cuts over the next two years have rocked bond markets over the past three weeks.
What do the details from the September meeting’s minutes in Washington suggest? Get the details of the FOMC minutes on COINOTAG.
FED’s FOMC Minutes Released
Last month, Federal Reserve policymakers reached a consensus that policy should remain restrictive for some time to cool inflation and noted that risks have become more balanced, according to minutes from the September meeting in Washington. The minutes stated that “participants generally viewed that monetary policy was in a restrictive position and that the risks of achieving the Committee’s objectives had become two-sided.”
The minutes show that Fed officials are moving towards a more symmetric policy outlook where the risk of over-tightening is weighed against inflation running above 2%. At the meeting, Fed officials kept benchmark lending rates at 5.25-5.5% and indicated that interest rates would remain high for longer than previously expected after a rate hike this year.
Since then, the sudden rise in long-term Treasury yields has prompted some policymakers to consider why they will meet on October 31-November 1. After the minutes were released, 2-year Treasury yields and the dollar, which are sensitive to Fed policies, reduced gains, and the S&P 500 index erased losses.
The minutes said that “a majority” saw it “likely to be appropriate” to cool demand and bring inflation closer to the 2% inflation targets over the next two years, “while some” said “another increase may not be necessary.”
According to the estimates announced last month, 12 of the 19 officials expected another hike this year, while their median estimates indicated fewer interest rate cuts in 2024 and 2025. The minutes said, “Participants generally noted the importance of balancing the risks of overtightening against the risks of failing to tighten sufficiently.”
A projected higher interest rate peak combined with a slower pace of rate cuts over the next two years have rocked bond markets over the past three weeks. U.S. 10-year Treasury yields have risen as much as 40 basis points since the September 20 meeting, corporate credit spreads have widened, and broader financial conditions have tightened. The rapid increase in borrowing costs surprised some officials at the Federal Open Market Committee.
Policy Path
Fed Vice Chairman Philip Jefferson said on Monday that he would consider “tightening financial conditions with high bond yields” in evaluating future policy paths. On the same day, Dallas Fed President Lorie Logan also said that higher yields could reduce the need for additional rate hikes.
Following these comments, bond markets rallied and futures contracts priced in about a 10% probability of a quarter-point rate increase at the next Fed meeting. Other Fed speakers advocated a cautious approach to future moves on Wednesday.
Fed Governor Christopher Waller said the central bank could “see what happens before making another rate hike” in an environment of tighter financial markets. Atlanta Fed President Raphael Bostic also said the central bank did not need to raise interest rates further as long as inflation was not slowing down.
The minutes noted that the economy is expanding at a solid pace, the labor market is achieving a better balance, and inflation is cooling, but remains above the target. The Dallas Fed cut the six-month annualized inflation rate for external prices for August from 3.4% in July to 3.1%. Fed officials estimate that economic growth should be pulled below the 1.8% trend rate.
Bitcoin Price Experienced a Significant Decline
Bitcoin’s price encountered some pressure on Monday but managed to hold the $27,000 level. The relatively stable BTC price on Tuesday showed a decline below the critical support level of $27,000 today. Bitcoin is currently trading at $26,640, marking a 2.7% drop in the last 24 hours.
