Fed Extends Rate Hike Pause

Washington, DC, November 2, 2023-"Federal Reserve Chair Jerome Powell hinted the central bank might be done raising interest rates for now but was careful not to rule out another increase after officials extended a pause in hikes,” reports the Wall Street Journal.

“Officials voted unanimously on Wednesday to leave rates unchanged at a 22-year high. “The committee is proceeding carefully,” Powell said during a press conference where he said.

“Stocks climbed, with the Dow Jones Industrial Average up 0.7%, or nearly 222 points. Bonds extended a rally that began Wednesday morning when the Treasury Department announced plans to slow the pace at which it issues longer-term debt. Yields on the 10-year Treasury note closed at 4.790%, down 0.084 percentage point from 4.874% on Tuesday. Yields fall as bond prices rise.

“At Fed officials’ September meeting, most projected one more rate increase this year, but some have spoken in recent weeks as though they aren’t eager to hike again unless hotter-than-expected economic data force their hand.

“Powell echoed that sentiment on Wednesday by repeatedly highlighting how much inflation has fallen, rather than emphasizing the economy’s recent strength.

“‘It sounds like this is a Fed that really doesn’t want to hike again,’ said Mark Cabana, head of U.S. rates strategy at Bank of America.

“‘If they wanted to hike again this year, Powell would have pointed much more to the risk that consumer spending would undo the progress we’ve seen on inflation,’ said Diane Swonk, chief economist at KPMG.

“Wednesday’s Fed decision comes at a delicate time for financial markets because the 10-year Treasury yield has risen swiftly-by nearly 1 percentage point-since July, when officials last raised rates. They lifted their benchmark federal-funds rate then to a range between 5.25% and 5.5%.

“Fed officials have now skipped a rate hike for two consecutive meetings, making it the longest period without an increase since they began to lift rates from near zero in March 2022. Since then, they raised rates at the fastest pace in four decades to combat high inflation.

“Powell’s comments Wednesday suggest he expects the Fed’s rate increases, along with the continuing process of shrinking its $7.9 trillion asset portfolio, will eventually slow the economy, said Michael de Pass, global head of rates trading at Citadel Securities.”

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