Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Fed Eyes Move to Restrictive Territory, Higher for Longer Rates: Fed Minutes

Published 10/12/2022, 02:00 PM
Updated 10/12/2022, 02:07 PM
© Reuters

© Reuters

By Yasin Ebrahim

Investing.com -- Federal Reserve policymakers agreed on the need to push monetary policy into restrictive territory, and keep rates higher for some time, to dent inflation that remains well above the central bank’s target, the Fed’s September meeting minutes showed Wednesday.

At the conclusion of its previous meeting on Sept. 21, the Federal Open Market Committee raised its benchmark rate by 0.75% to a range of 3% to 3.25%.

It was the third time in a row the central bank had lifted its benchmark rate by three quarters of a percentage point, putting it on course for one of its fastest tightening cycles on record at a time when global growth is on the back foot.

The International Monetary Fund recently cut its global growth forecast to 2.7% for 2023 from a prior forecast in July of 2.9%, warning that 2023 “will feel like a recession for millions around the world.”

Citing an "unacceptably high level of inflation," Fed members were in favor of "purposefully moving to a restrictive policy stance in the near term," with many emphasizing that the "cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action," according to the minutes.

The Fed appears willing to accept that a further slowdown in growth is required as efforts to stifle economic growth by curbing labor demand and wage growth aren’t yet slowing the pace of inflation fast enough. "[I]nflation was declining more slowly than they had previously been anticipating," the Fed minutes said.

"Participants generally anticipated that the U.S. economy would grow at a below-trend pace in this and the coming few years, with the labor market becoming less tight, as monetary policy assumed a restrictive stance and global headwinds persisted," it added.

The Fed’s benchmark rate has increased by 300 basis points in a little over six months, but Fed Chairman Jerome Powell was quick to downplay expectations last month that rates are closing in on restrictive territory.

"We've just moved into the very, very lowest level of what might be restrictive [territory]," Powell said in the FOMC’s September press conference.

At the September meeting, voting Fed members forecast rates to reach 4.4% in 2022, and peak at 4.6% in 2023, leaving some market participants betting on a possible rate cut, or “Fed pivot” in the second half of 2023.

But Fed members have pushed back against those expectations, insisting that once rates reach a "sufficiently restrictive level, it likely would be appropriate to maintain that level for some time until there was compelling evidence that inflation was on course to return to the 2 percent objective."

About 80% of traders expect the Fed to lift rates by 0.75% for the fourth time in a row next month, according to Investing.com’s Fed Rate Monitor Tool.

Inflation data due Thursday could likely all but cement those hawkish Fed rate hike bets as economists forecast a slowdown in headline inflation, but a step up in core inflation, which excludes food and energy prices, and is closely monitored by the Fed as a more indicative measure of underlying price pressures.

The slowdown and uncertainty in the global economy, however, do appear to be on the Fed's radar as "several participants noted that [...] it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."

The Fed’s quantitative tightening, or bond selling program, is also playing a role in tightening financial conditions after the Fed ramped up the pace of QT to $95 billion last month, up from $47.5 billion in June.

Treasury yields have been quick to price in the Fed’s increasingly hawkish path of monetary policy tightening, with the 10-year Treasury yield trading close to its highs of the year of around 4%.

The rally in yields since the July bottom has put the screws on growth stocks including tech, pressuring the S&P 500 into bear market territory, with some warning of more pain to come.

“There's downside for risk assets because the Fed really isn't under any real pressure to change course,” David Keller at StockCharts told Investing.com's Yasin Ebrahim in an interview on Tuesday.

“If you think the 10-year Treasury yield is high now, it’s because you're looking at too short of a timeframe," Keller added. “Look back at the last 30, 40, or 50 years, you can see we're still at fairly low levels relative to the long-term averages.”

Latest comments

Good luck your whole economy is built on cheap debt, don't see this lasting long.
Deep down, you cannot ignore the trillions more of debt spent since Biden took office, including liability of $0.5 TRILLION for illegal student loan spending.
You are hilarious. You should come spend some time in America, get a feel for it so you'll know how ridiculous you sound to us.
  Student loans for Trump U. were illegal!
I personally have decided not to fight the Fed. Instead, I am going to help them get their wish for a slowdown. Therefore, I just returned a large purchase to the store, and I won't be buying anything else unless it's absolutely necessary. My wallet is now snapped shut until rates stop going higher or until many many more people lose their jobs. We all need to do our part to slow down the economy.
Oh, no! How will we survive without you?
Ignore Brad. No one likes him here except first, gab, and Barani.
And your sister.
The FED has a plan!
...and... stocks have barely move. Guess the PPT was ready and poised to pump!
Hi
Long live the FED
congress should evaluate if current practices of Fed are constitutional. their recent actions appear misguided and mismanaged in terms of timing and balancing.
Is this an article about the fed minutes of the IMF or how bearish the author is trying to convince us everything is???
Excellent.
who does need 3 months market summary? Just write the necessary news and that's it. Data since June is waste of time as almost every reader knows what happened in the past 3 months. Keep it short and sweet.
market is up
But, for how long?
Why is this news. Fed has been saying the same thing for almost a year now. BORING
This is all`s Biden fault. So idiotic..so stupid president.
gold up or down in 3 weeks?
Gold price has been trending down since Russia invaded Ukraine.
Waaaay up !! (Always invest prodently. Ignorance will wipe you out.) Have a nice day.:)
Signal of SELL NAS100 now! Stop 100 pips TP 300 pips
Wouldn't sell the bottom. After a spike up it's better.
means fed in restrictive mode
please can anyone help me with a site/group where these news releases are interpreted in simpler language as regards how it affects the currency concerned.
please can anyone help me with a site/group where these news releases are interpreted in simpler language as regards how it affects the currency concerned.
https://www.investopedia.com or google any terms you don't understand
translate .google .com
thanks guys
lol they haven't moved. they've been only there
rally on?
um for what? fed literally said it doesn't care
so 75 bp it is
😂😂😂
Fed keep hiking and blaming recession like a i.d.i.o.t
There is no recession.
Biden did it all.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.