At their latest policy meeting, Federal Reserve officials were leaning towards one more rate hike and then holding rates high for ‘some time.’
Newly released records of discussions among Federal Reserve policymakers show that they expect one more interest rate hike and then they’ll hold rates high for “some time,” although a recent surge in long-term Treasury yields may have changed that calculus.
Minutes from the central bank’s most recent September meeting of the rate-setting Federal Open Market Committee (FOMC), released on Oct. 11, show that a “majority” of officials believe that one more rate hike “would likely be appropriate” to get inflation closer to the Fed’s 2 percent target.
At that meeting, FOMC members opted to keep rates unchanged within a range of 5.25 to 5.5 percent—the highest level in 22 years.
By contrast, “some judged it likely that no further increases would be warranted,” the minutes read, which is a view that aligns closely with market expectations that put the odds of another pause at the FOMC’s next meeting in November at more than 90 percent.
Before the release of the minutes, a recent surge in longer dated U.S. Treasurys—which made government borrowing more expensive—prompted several Fed officials to suggest that the central bank may leave rates unchanged in November.
Bond Surge in Focus
Since late July, the yield on the benchmark 10-year Treasury note jumped from about 4 percent to about 4.8 percent—a 16-year high.
Mortgage rates, which are closely tied to the 10-year Treasury yield, have risen to 7.5 percent, a 23-year high, according to Freddie Mac.
Corporate bond yields, too, have risen, raising borrowing costs for businesses.
Philip Jefferson, vice chair of the Fed’s board, said in a speech on Oct. 9 to the National Association for Business Economics that higher bond rates are something that he will keep in mind as he assesses “the future path of policy.”
At the same event, Lorie Logan, president of the Federal Reserve Bank of Dallas and a voting member of FOMC, said that market moves around long-term bond rates would tighten financial conditions and do some of the Fed’s work for it, weakening the case for the central bank to deliver another rate hike.
By Tom Ozimek
