U.S. Federal Reserve officials agreed at their last policy meeting that they would proceed “carefully” and only raise interest rates if progress in controlling inflation faltered, the minutes of the Oct. 31-Nov. 1 gathering showed on Tuesday.

“All participants agreed that the Committee was in a position to proceed carefully,” according to the minutes, which appeared to show support for more rate hikes dissipating within the U.S. central bank’s Federal Open Market Committee, and the baseline shifting to one in which its benchmark overnight interest rate remains steady absent a bad inflation surprise.

Inflation has been slowing – consumer prices did not rise at all on a month-to-month basis in October – and while the Fed has not declared its fight against rapid price increases over, the tenor of the discussion has been shifting towards a focus on how long to keep the policy rate in the current 5.25%-5.50% range.

“Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient,” said the minutes, a statement that indicated it will take an unexpected shock of some degree to prompt a further rate increase.

That sentence did not appear in the minutes of the Fed’s prior meeting in September, when “a majority of participants” still judged that another rate increase would be needed in a tightening cycle that has pushed the policy rate 5.25 percentage points higher in the past 20 months.

The latest policy meeting readout, by contrast, said that “all participants judged it appropriate to maintain” the current rate setting, a stance that will be clarified at the Fed’s Dec. 12-13 meeting when policymakers issue a new set of detailed projections for interest rates and the economy.

The document drew little reaction in financial markets, largely affirming the view that the Fed is done raising rates but won’t explicitly say so until more officials become convinced inflation won’t rebound.

Contracts tied to the federal funds rate continued to show a near-zero probability of further increases. Odds of a rate cut at the Fed’s April 30-May 1, 2024 meeting rose slightly to roughly 60%, from about 57% before the release of the minutes, according to the CME Group’s FedWatch Tool.

U.S. stocks added slightly to losses and closed lower following the release of the minutes, while the U.S. dollar (.DXY) edged higher against a basket of currencies. U.S. Treasury yields slipped.

The minutes showed U.S. central bank policymakers wrestling with conflicting economic signals that have made risks to the economy “more two-sided,” with rekindled inflation still a concern, but worries as well about clamping down on credit too far and damaging the economy’s prospects.

U.S. economic growth had just registered an outsized 4.9% annualized gain in the third quarter, a seemingly inflationary pace. But financial markets had driven interest rates higher for households, businesses and the U.S. government, threatening to curb economic and job growth more than might be necessary to return inflation to the Fed’s 2% target.

“Participants commented on the significant tightening in financial conditions in recent months, driven by higher longer-term yields,” the minutes said.

Still, inflation “remained well above” the central bank’s target, likely requiring Fed policy “to remain at a restrictive stance for some time until inflation is clearly moving down sustainably.”

“The overall tone of the FOMC minutes was cautiously hawkish – the commitment to remaining in restrictive territory for ‘some time’ was the clearest takeaway,” said Ian Lyngen, strategist with BMO Capital Markets.

NO VICTORY DECLARATION

Fed Chair Jerome Powell had made liberal use of the “careful” concept at his last press conference in describing the central bank’s efforts to balance still-elevated inflation with a sense the economy was about to slow.

There’s good reason to be cautious, with the Fed possibly on the verge of pulling off the unexpected by navigating out of the worst inflationary surge in 40 years without doing major damage to the economy.

A New York Fed staff study released on Tuesday suggested in fact that the U.S. central bank’s late start in raising interest rates, with the first hike coming a year after prices began a sharp rise, allowed the economy to bank more growth with the same progress on lowering inflation than would have been the case if rate increases had started sooner.

There’s little appetite among policymakers, however, to declare victory yet, or to give investors much direct guidance about what will happen next.

“Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said at an International Monetary Fund research conference earlier this month. “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of over-tightening.”

Source : Reuters

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Nigeria’s central bank said on Thursday that it had delayed an interest rate meeting that had been planned for next week and that it would schedule a new meeting later.

In a statement on its website, the Central Bank of Nigeria did not say why the Sept. 25-26 meeting of its Monetary Policy Committee was delayed and a new date would be set later.

The postponement comes days after President Bola Tinubu nominated a new central bank governor and four new deputy governors. The Senate is yet to hold confirmation hearings for Tinubu’s picks.

In July, the central bank opted for a small rate hike at the first monetary policy meeting since Tinubu suspended central bank governor Godwin Emefiele.

Emefiele oversaw a much-criticised system of multiple exchange rates used to keep the local naira currency artificially strong and lent directly to businesses to try to boost growth in Africa’s biggest economy.

Tinubu criticised the central bank’s policies under Emefiele at his inauguration in May, saying they needed “thorough house-cleaning”.

Source : Yahoo

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The Federal Reserve held interest rates steady on Wednesday but stiffened its hawkish stance, with a further rate increase projected by the end of the year and monetary policy kept significantly tighter through 2024 than previously expected.

Fed policymakers at the median still see the central bank’s benchmark overnight interest rate peaking this year in the 5.50%-5.75% range, just a quarter of a percentage point above the current range. But from there the Fed’s updated quarterly projections show rates falling only half a percentage point in 2024 compared to the full percentage point of cuts anticipated at the meeting in June.

Fed Jerome Powell, speaking after the rate decision, cautioned that new central bank forecasts showing monetary policy staying higher for longer are not a pledge for action.

MARKET REACTION:

STOCKS: S&P 500 lost 13.36 points, or 0.30%, to .4,430.59BONDS: The U.S. Treasury 10-year yield was last down 1.6 basis points at 4.35%.

FOREX: The dollar index trimmed losses after the rate decision, was last flat at 105.11.

COMMENTS:

GARRETT MELSON, PORTFOLIO STRATEGIST, NATIXIS INVESTMENT MANAGERS SOLUTIONS, BOSTON

“Consensus was a hawkish pause and that’s exactly what the decision, and more importantly the SEP delivered. The pause was fully baked and recent rhetoric has suggested they feel comfortable that they are at or very close to the appropriate level of rates – hence the unchanged 2023. It all comes down to the final policy lever – duration. How long do they keep rates restrictive?

“And that’s where the surprise was – the 2024 median dot moved up 50 basis points. But while all the focus will remain on whether the Fed is hawkish or dovish, really it’s the economy that remains hawkish…2024 is where the signal is and it continues to read like a soft landing: upward revisions to growth and downward revisions to unemployment despite keeping inflation projections largely unchanged in their continued path of moderation.”

“The data is in the driver’s seat and as the Fed sees the data unfolding at the moment is resilient growth and labor markets as inflation slowly returns to target over the next few years. But as always, the dots are more a messaging tool than anything else. Should the data unfold differently, with core PCE potentially declining faster than expected, the actual path of policy will look different. As for the presser, expect more of the same: progress, but the job isn’t done and risks remain. It’s all about data dependence, flexibility, and optionality. And as has become tradition during the quarterly meetings, expect some pushback from Powell on the dots as a prescribed path of policy. The data will dictate the path.”

GINA BOLVIN, PRESIDENT, BOLVIN WEALTH MANAGEMENT GROUP, BOSTON

“This pause was unanimous, and the Fed may stay at this current rate for quite some time. The economy is growing stronger than the Fed thought and no one- not even Powell- knows what they will do in the 4th quarter.”

“For sure the Fed is back to a neutral stance on balancing inflation vs employment.”

“We are far from the recession many have predicted. We are closer to a soft landing. In fact, GDP was revised upwards from 1.1 to 1.5%.”

“Regarding macro data, the next important dates are Oct 11 for PPI and Oct 12 for CPI. In my opinion, soft landing is very possible.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

“They went from a hesitant hike in July to a hawkish hold in September. While their dots say one more hike, we all know better. They’re going to try to hold rates where they are as long as possible, probably longer than necessary. The good news is that the Fed thins we’re just over two years away from it hitting its targets.”

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO

“This wasn’t a “pause”, it was a “skip”. With the economy performing better than expected and inflation pressures remaining persistent, Fed officials chose to maintain a hawkishly data-contingent bias in this afternoon’s statement and dot plot.”

“Policymakers are clearly trying to shift from ‘higher’ toward ‘longer’ in their communications strategy as they work to prevent a counter-productive easing in financial conditions. But the fundamentals also support this strategy – signs of excess demand are everywhere in the U.S. economy, and headwinds remain remarkably subdued.”

“The dollar and Treasury yields are set to pop higher as traders push monetary loosening expectations further into 2024.”

GENNADIY GOLDBERG, HEAD OF U.S. RATES STRATEGY, TD SECURITIES, NEW YORK

“It looks as though the Fed is trying to send as hawkish as signal as it possibly can. It’s just a question of whether the markets will listen to them would without taking them with a grain of salt. At this point in the cycle, this is what the Fed wants us to believe and needs the market to believe. It’s just a question of how the data evolves from here.”

“To some extent, talk is cheap. I do think that they’ll remain data dependent and you’ll probably hear that from Powell at the 2:30 press conference and going forward as well. So yes, they’re talking about higher rates for longer, but it’s really the economy that matters. And if the economy starts to soften, I don’t think these dot-plot projections will actually hold up, so we’ll certainly be waiting and watching.”

TOM MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA

“It was actually a good bit more hawkish than I thought it was going to be. It’s definitely higher for longer, and I just don’t think those kinds of metrics were expected.”

“You’re not going to get relief on rates anytime soon, and so that means that interest costs are going to remain elevated, probably for longer than people expected.”

MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO

“Previously, the Fed had seemingly signaled a commitment to being aggressive, potentially even again raising interest rates multiple times before the end of this year to continue efforts to drive down inflation. While they still very well may follow through with that before the end of this year, this week’s announcement indicates that the Fed may believe that the best course of action, for now, is to continue monitoring the economy, and the effects of previous hikes, to determine if and when additional rate hikes are necessary.”

“The decision not to raise rates at present will likely have impacts across the credit markets. In the mortgage market, for instance, consumers who have been holding off may begin to be motivated by the announcement to consider making the home purchase they have been waiting on.”

“Consumers who have credit cards will also likely see some short-term benefits by this announcement. This is because when the Fed announces an interest rate increase, credit card interest rates typically follow shortly thereafter, which may result in larger minimum monthly payments for credit card holders. While the decision not to raise interest rates this time round mitigates that for now, more interest rate increases may be on the horizon. For that reason, it’s a good idea for consumers to continue to maintain balances that are in alignment with what they know they will be able to make payments on each month, and take into consideration the possibility of further interest rate increases and how those payments may change as a result.”

Source : Yahoo

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