Following the September meeting, the 10-year Treasury yield had risen to approximately 4.66% as of October 10, reflecting the expected rate increases that policymakers had indicated earlier.
Federal Reserve officials have opted to maintain their cautious approach to monetary policy, leaving interest rates unchanged during their September meeting. Minutes from the September 19-20 meeting revealed a consensus among policymakers that the US economy faced mounting uncertainties.
Most meeting participants believed a further increase in the target federal funds rate would likely be necessary, while some argued against additional hikes. However, all Federal Open Market Committee (FOMC) members agreed on one central point: monetary policy should remain restrictive until they are confident that inflation is steadily moving toward the 2% target.
Restrictive Policy Should Stay in Place
The meeting concluded with the FOMC choosing to leave the benchmark rate unchanged, maintaining it within the range of 5.25% to 5.5%. Since March 2022, the committee has raised the key interest rates 11 times, reaching its highest level in 22 years.
According to the minutes, all members of the rate-setting committee agreed that they should proceed carefully and that policy decisions at every meeting would be based on incoming data, taking into account “the balance of risks”.
Following the September meeting, the 10-year Treasury yield had risen to approximately 4.66% as of October 10, reflecting the expected rate increases that policymakers had indicated earlier.
The minutes emphasized that the future path of the US economy remains highly uncertain, and various factors have supported the case for proceeding with caution.
Notably, the recent rise in US Treasury yields has garnered attention that could slow the economy and inflation, potentially reducing the need for further central bank action.
New Consumer Price Index Could Influence Fed’s Decision
Several Fed officials have acknowledged that tightening financial markets may do some work to control inflation. These market developments have sparked discussions about shifting the focus of monetary policy decisions from determining how high to raise the policy rate to deciding how long to maintain the policy rate at restrictive levels.
While most participants believe that another rate increase is likely, the emphasis is increasingly shifting toward sustaining a restrictive policy for an extended period. There was a consensus that policy should remain restrictive until there is clear evidence that inflation is steadily moving toward the Fed’s 2% goal.
However, the release of the consumer price index report for September could further influence the Fed’s decision-making. With key annual inflation measures above 3%, the central bank is navigating the delicate balance of maintaining policy while striving to achieve its inflation target.
According to the minutes, some officials believe consumers have continued to spend. Still, some are concerned about the impact of tighter credit conditions, reduced fiscal stimulus, and the resumption of student loan payments.
“Many participants remarked that the finances of some households were coming under pressure due to high inflation and diminishing savings and that there had been an increasing reliance on credit to finance expenditures,” the minutes said.
Fed Governor Says Interest Rates May Need to Rise Further
Aside from the just-concluded meeting, the FOMC has two more meetings scheduled for this year, with officials set to meet on October 31 and announce the results of their two-day meeting on November 1.
Federal Reserve Governor Michelle Bowman recently stated during an event on Wednesday that interest rates may need to rise further and remain elevated for an extended period compared to previous expectations to bring inflation down to the central bank’s 2% target.
While Governor Bowman did not comment on her expectations for the FOMC’s next rate decision, she did highlight the continuing strength of domestic spending and the tight labor market.
She suggested that these factors imply the need for the policy rate to be raised further and maintained at a restrictive level for some time to achieve the FOMC’s inflation goal. The upcoming FOMC meetings are likely to be instrumental in shaping the future direction of US monetary policy.
Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.
