Stock markets reacting to teasers from last month's meeting
Recently released minutes from September’s meeting of the Federal Open Market Committee (FOMC) point to where Fed officials are looking for guidance on inflation.
According to the Financial Times officials at the meeting acknowledged the “two-sided” risks of pursuing the bank’s 2% inflation target, as well as agreeing to “proceed carefully” on future interest rate decisions.
At the meeting last September, the FOMC agreed to keep rates steady. A 12-7 majority of fed officials indicated in new projections that there may be one more rate increase this year. The minutes seem to point towards a ‘higher for longer’ rate environment, whether that final increase comes or not.
“Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee’s goals had become more two sided. But with inflation still well above the Committee’s longer-run goal and the labour market remaining tight, most participants continued to see upside risks to inflation,” the minutes said.
CNBC reports that there was unanimity among policymakers on a need to keep rates elevated to achieve the 2% target. The minutes read “that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective.”
Reuters reports that Fed officials remained concerned about the uncertain path of the US economy, the state of financial markets, potential oil price shocks, and the impact of labour union strikes.
While the minutes stated there remains “work to do” to curtail inflation, the growing concern around risks of increasing too far too fast and causing an undue shock in the labour market should be considered somewhat hopeful for those seeking a more dovish stance from the Fed.
Since the September meeting, many investors have priced out a chance of another rate increase. According to CME Group’s FedWatch Tool there is currently a 12% chance of a hike at the end of October, and a 26% chance of a hike at the mid-December FOMC meeting.
Markets remained largely rangebound in response to the minutes, with the S&P 500 and the DOW trading slightly lower. Yields on 10-year treasuries fell slightly while yields on two-year bonds rose slightly, moderately exacerbating the current yield curve inversion.
