With rates at a 22-year high, the Fed expresses worry about rising yields

 With rates at a 22-year high, the Fed expresses worry about rising yields

The move, which was made as part of a plan to scale down the rate of rate hikes as the central bank approaches the conclusion of its tightening campaign, kept the target range for the standard federal funds rate at 5.25% to 5.5%, the highest since 2001.

For the second consecutive meeting, the Federal Reserve kept interest rates at a 22-year high while expressing concern about the impact of the recent increase in Treasury yields on the inflation and economy.

The US Federal Reserve's policy-setting Federal Open Market Committee stated in a post-meeting statement released in Washington on Wednesday that "tighter financial alongside credit conditions for both consumers and companies are likely to weigh on economic activity, hiring, alongside inflation," including the word "financial" to language that had previously only referred to credit conditions.

The Fed said that it "remains highly attentive to inflation risks," adding that "the extent of these effects remains uncertain."

The move, which was made as part of a plan to reduce the rate of rate rises as the central bank approaches the conclusion of its tightening campaign, kept the target range for the benchmark federal funds rate at 5.25% to 5.5%, the highest level since 2001.

The statement was mostly unchanged by the officials. One change they made was to describe the rate of economic growth as "strong" instead of "solid," in light of improved data that has been provided since their September meeting.

The policymakers reiterated that they would consider the cumulative tightening of monetary policy together with lag effects on the economy and inflation when assessing "the extent of additional policy firming that could possibly be appropriate to return inflation to 2% over time."

Boost Odds

Traders had a one-in-three likelihood of seeing a 25 basis-point hike by the end of January going into the decision. The FOMC will convene again on December 12–13 and January 30–31.

In order to combat inflation, policymakers quickly increased borrowing rates from almost zero in March 2022. Now, they are taking some time to evaluate the results of their previous rate changes, but they are not ruling out further tightening.

Additionally, some officials have said that there may be less need for additional rate rises given the recent spike in long-term Treasury rates.

There was a unanimous conclusion.

Fed Chair Jerome Powell will provide further details about the choice and the future during a news conference in Washington at 2:30 p.m. Numerous economic reports that highlight strong growth and tenacious consumers are exerting pressure on policymakers to allow for potential rate increases in the future.

GDP Increase

The US economy grew at its quickest pace in over two years last quarter, with an annualized 4.9% growth rate, thanks to consumer spending sprees on furniture, vacations, and other discretionary items.

When employment growth in September exceeded forecasts, a gauge of underlying inflation that is widely monitored by Fed policymakers also surged to a four-month high.

The Labor Department's publication of the October jobs report on Friday will provide policymakers with further information about the state of employment.

One of the most important problems confronting policymakers is whether this economic momentum will continue or slow down; the answer might influence inflation and interest rate movements.

Predictions made public at the Fed's September meeting indicated that most officials at the time were in favor of one more rate rise this year. They also saw longer-term increases in borrowing costs.

Treasury Returns

Nevertheless, since the meeting, rates have increased, leading some officials—such as Dallas Fed President Lorie Logan and other hardline policymakers—to indicate that they would be in favor of another delay in rate rises at this week's meeting.

Numerous analysts predict that this quarter will see a slowdown in spending and growth as consumers struggle with rising debt payments, declining income increases, and declining cash reserves.

One financial barrier is removed by tentative agreements between the United Auto Workers union and the three largest automakers in Detroit. However, authorities will also need to keep an eye on other potential obstacles, such as mortgage rates that are close to 8%, which would make buying a house impossible, a probable government shutdown in the US, and an intensifying conflict between Israel and Hamas.

Other authorities, however, express fear that the unexpectedly robust economy might lead to inflation being persistently high for longer than desired.

"More evidence of consistently above-trend growth, or that labor market constraint is no longer easing, could warrant a stronger tightening of monetary policy and put greater progress on inflation at risk," Powell said earlier this month in New York.