US Fed Meeting Live Updates: At 5.25-5.50%, Powell-led FOMC keeps key interest rates unchanged at 22-year high mark

The US Federal Reserve is not discussing interest rate cuts, the bank’s chair said Wednesday, shortly after policymakers voted to hold rates at a 22-year high to tackle inflation. “The fact is the committee is not thinking about rate cuts, right now at all. We’re not talking about rate cuts,” Jerome Powell told reporters in a post-policy press conference.

Oil prices eased about 1 per cent to a three-week low after the US Federal Reserve kept interest rates steady as expected but noted that it needed to keep the door open to possible future rate hikes due to the strong US economy.

Interest rate hikes to fight inflation can slow economic growth and dampen oil demand. Brent futures fell 39 cents, or 0.5 per cent, to $84.63 a barrel, while US West Texas Intermediate (WTI) crude fell 66 cents, or 0.8 per cent, to $80.36, according to Reuters.

US stocks are rising Wednesday after the Federal Reserve opted against pressing the brakes even harder on Wall Street and the economy for now. The S&P 500 was up 0.8 per cent in afternoon trading, coming off its third straight losing month largely because of higher yields in the bond market. The Dow Jones Industrial Average was up 156 points, or 0.5 per cent, and the Nasdaq composite was 1.1 per cent higher. Indexes added to their gains after the Fed announced its decision to hold interest rates steady, which was what investors expected. 

The decision was widely expected, given the Fed’s stated goal of slowing inflation to its long-term target of two percent.

It marks the first time officials have held rates steady at two consecutive meetings since they began tightening monetary policy last year.

The US central bank said any future decisions on policy firming would “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

The US banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The US Federal Reserve announced its interest rate decision today after a two-day Federal Open Market Committee (FOMC) meeting and left the benchmark interest rates unchanged at 5.25 per cent – 5.50 per cent. 

US Fed Reserve to deliver policy decision shortly. In the previous meeting, Powell offered a positive assessment of US consumer health and the labor market, an outlook that keeps alive the chance of averting recession. However, this also likely means that interest rates will remain higher for longer.

Gold prices were little changed on Wednesday as investors stayed on the sidelines ahead of the U.S. central bank’s policy decision, with major focus on Chair Jerome Powell’s speech for cues on future rate stance. Spot gold was down 0.2 per cent at $1,977.97 per ounce. US gold futures eased 0.4 per cent at $1,986.90, according to news agency Reuters.

Europe’s benchmark index rose on Wednesday, led by healthcare and retail stocks, with investors bracing for a policy decision by the Federal Reserve later in the day. The pan-European STOXX 600 closed 0.7 per cent higher and logged its third straight day of gains. Trade volumes were lighter due to an All Saints’ Day observance, according to news agency Reuters.

The index registered its worst monthly performance in over a year in October, hurt by concerns about economic growth and interest rates staying higher for longer. Capping gains in equities, however, was a rise in euro zone bond yields ahead of the Fed’s policy outcome, where it is widely expected to hold US interest rates steady.

The US Treasury plans to keep increasing issuance of inflation-protected securities at a pace that maintains the sector’s overall share of total US marketable debt.

The department will keep the November 10-year Tips reopening auction size at $15 billion, and boost the January 10-year Tips new issue auction size by $1 billion to $18 billion, according to the latest quarterly debt refunding announcement, which covers the period from November 2023 to January 2024. It also said it will lift its December 5-year Tips reopening auction size by $1 billion.

US FOMC Meeting Live: The stance that will be adopted by the US Federal Reserve on interest rates is expected to set the tone for US.equities, which faced a sharp fall in October due to a jump in Treasury yields. The Israel-Hamas conflict and the resultant tensions in Middle East, and the mixed earnings report had also contributed to the decline last month.

Wall Street climbed with investors optimistic about the Federal Reserve keeping interest rates unchanged later in the day, while a pullback in bond yields after the U.S. Treasury Department’s refunding plans boosted megacap stocks, Reuters reported. At 11:44 a.m. ET, the S&P 500 was up 23.07 points, or 0.55%, at 4,216.87, the Nasdaq Composite was up 84.91 points, or 0.66%, at 12,936.15 and the Dow Jones Industrial Average was up 121.27 points, or 0.37%, at 33,174.14.

US job openings increased in September, pointing to persistent labor market tightness that is supporting the economy and likely to see the Federal Reserve keeping interest rates higher for a long time to cool demand.

The Job Openings and Labor Turnover Survey, or JOLTS report from the Labor Department on Wednesday also showed layoffs dropping to a nine-month low. There were 1.50 job openings for every unemployed person in September, slightly up from 1.49 in August and way above the pre-pandemic ratio of 1.2, according to Reuters.

Oil prices climbed about 2 per cent on Wednesday on worries the conflict in the Middle East could disrupt oil supplies and ahead of an expected U.S. Federal Reserve announcement that could provide clues about future interest rates.

Brent futures for January delivery rose $1.63, or 1.9 per cent to $86.65 a barrel. But the January contract remained below where the December contract settled on Tuesday. US West Texas Intermediate crude rose $1.64, or 2.0 per cent, to $82.66 per barrel, according to news agency Reuters.

Treasury yields slid on Wednesday, with the 10-year note falling to two-week lows, after the Treasury Department announced plans to “gradually” increase the size of its debt auctions in a move that didn’t roil markets as a previous funding announcement had. 

Yields also fell on a report showing US private payrolls increased less than expected in October as wage growth moderated, a welcome sign for the Federal Reserve, which is trying to tame inflation that’s still almost twice as high as its 2 per cent target.  

The yield on the benchmark 10-year note fell 7.8 basis points to 4.797 per cent, sliding beneath 4.8 per cent for the first time since October 17, when hot retail sales data for September led Treasuries to sell off, according to a report by Reuters.

With the US central bank widely expected to hold rates steady, investors will closely monitor Fed Chair Jerome Powell’s speech to gauge where interest rates are headed and how long they will stay higher.

Data showed a smaller-than-expected increase in US private payrolls, which took some steam out of a still-tight labor market.

Private payrolls rose by 113,000 jobs and data for September was unrevised to show an 89,000 addition, as previously reported. Economists polled by Reuters had forecast private payrolls rising 150,000 last month.

Wall Street’s main stock indexes rose on Wednesday as investors looked forward to the Federal Reserve’s monetary policy decision, while megacap stocks gained as bond yields eased after the US Treasury Department’s refunding plans. The yield on the benchmark 10-year note slipped after the refunding news and was last at 4.812 per cent.

Megacap growth stocks including Tesla, Microsoft, Nvidia and Amazon.com gained between 0.8 per cent and 1.8 per cent. Five of the 11 major S&P 500 sectors were trading higher, with information technology and communication services leading gains.

In his remarks last month, Fed Chair Powell echoed other Fed officials in suggesting that the US economy is at a turning point: If growth remains as healthy as it has been since this summer, additional rate hikes could be needed. But any sign of weaker growth or hiring could help slow inflation and allow the Fed to keep rates unchanged.

Powell also added that the Fed is “proceeding carefully” in evaluating the need for any further rate increases, likely leaving intact the current expectations by Wall Street traders and economists that the central bank will hit a pause of rates.

The Russia-Ukraine war and the Israel-Hamas war are the important geopolitical events that the Fed will keep in mind in its policy meeting. The Israel-Hamas war enters day 26 and the efforts to end it have not yielded the desired fruits so far. Experts say the geopolitical risks are grave and if the conflict spreads to other countries in the region, it will deal a serious blow to the global economy.

Market reaction to the FOMC might be muted: The decision is well anticipated and investors have been focused on the US fiscal deficit, so the Treasury refinancing announcement might overshadow the Fed Wednesday, according to Bloomberg. Surging US Treasury yields have contributed to a tightening of financial conditions, which a number of Fed officials said could make it less necessary to raise rates this meeting. 

Global financial markets are likely to rally in November and December, predicts the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The bullish prediction from deVere Group’s Nigel Green comes despite stock market corrections and weak investor sentiment.

He says: “History shows that November is the second-best month of the year for markets, behind April.

“This November could be even more positive as some markets are currently in correction territory – falling by more than 10% – and so a swing to the upside will be more pronounced.”

The US Federal Reserve began its second day of interest rate deliberations Wednesday, after which it is widely expected to announce it will keep interest rates at a 22-year high in a bid to tackle inflation without harming the buoyant US economy.

The meeting began at 9:00 am (1300 GMT), the US central bank said in a statement. When the Fed hikes interest rates it raises the cost of borrowing from the bank, which works to dampen economic activity and weakens the labor market.

Nigel Green, CEO and Founder of deVere Group suggests  important strategies that investors should consider.

“First, maintain a well-diversified portfolio that spreads risk across various asset classes. Diversification can help mitigate the impact of rising interest rates and market volatility.

“Second, evaluate your risk tolerance and investment goals. Ensure that your portfolio aligns with your financial objectives, and consider adjusting your asset allocation accordingly.

“Third, given the potential for higher market volatility, active management can be valuable. Reassess and rebalance your portfolio as needed to capitalise on opportunities and manage risks effectively.

‘The prevailing market sentiment is that the Federal Reserve will maintain its current high interest rate base point in the short term. However, there are apprehensions regarding the potential delayed ramifications of the ongoing series of interest rate hikes on the broader economy,’’ said Jayden Ong, Senior Market Analyst, APAC at Vantage

‘’Hence, the anticipation is that the Federal Reserve will maintain vigilant scrutiny of economic data as it unfolds before arriving at a definitive decision. Presently, market participants are estimating a probability exceeding 60 per cent that monetary policymakers will enact a further 25-basis-point rate hike in January, indirectly bolstering the underpinning of the US dollar index,” added the analyst.

Fed officials project the central bank’s main measure of inflation at 3.3 per cent at year end, compared to June’s forecast of 3.2 per cent, falling to 2.5 per cent by the end of next year, compared with 2.5 per cent seen in June. FOMC estimates US inflation reaching 2.2 per cent by the end of 2025, before finally attaining the 2 per cent goal in 2026.

“The process of getting inflation sustainably down to 2 per cent has a long way to go,” Chair Jerome Powell said at a post-policy press conference. “We’ve seen progress, and we welcome that, but we need to see more progress” before concluding that it’s appropriate to end the rate hikes.

In the previous policy decision, Fed policymakers had raised the US GDP projection to 2.1 per cent this year, a notable upgrade from the 1 per cent growth projected in June, and expanding by 1.5 per cent next year.

FOMC members have left the median projection for interest rates at the end of this year between 5.50 per cent and 5.75 percent, keeping the possibility of another quarter percentage point hike by December, to bring inflation down to the 2 per cent target. Read full story here

Federal Reserve Chair Jerome Powell said on October 19 that inflation in the US remains too high and bringing it down to the Fed’s 2 per cent target level will likely require a slower-growing economy and job market. Powell’s remarks appeared to push back against market expectations that the rate hikes by the US central bank had reached an end.

“We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said in remarks to the Economic Club of New York. Read full story here

Ahead of the US Fed decision, Vinod Nair, Head of Research at Geojit Financial Services, said, “The domestic indices were responding to the global signals ahead of the Fed’s monetary policy decision later in the day, while the global market was also assimilating to the mixed bag of US corporate earnings reports. 

‘’Markets anticipate a status quo in the Fed policy however sustenance of the high rate for a prolonged period is the issue. Ease in demand, as reflected by October PMI data, led to more cautiousness in India compared to Asian & European peers. However, good H1 gross tax collection and in-line expectation monthly volume demand by the auto sector, resulted in a minimal negative effect,” added Nair.

Despite the strong recent string of economic data, the Fed’s rate decision has been made easier by a recent surge in yields on longer-term government bonds. The Fed’s rate-setting committee “appears to have coalesced around the view that the recent tightening in financial conditions led by higher long-term interest rates has made another hike unnecessary,” economists at Citi wrote in a recent note to clients.

The US labour costs increased significantly in the September quarter amid strong wage growth. According to a Reuters report, quoting the Labor Department’s Bureau of Labor Statistics data, the Employment Cost Index (ECI), the broadest measure of labour costs, rose 1.1 per cent last quarter after increasing 1 per cent in the April-June period.

Key questions revolve around whether the Fed will opt for interest rate reductions in the near term or maintain a more hawkish stance by signalling further rate hikes. The US inflation cooled off significantly in September but it remains well above the Fed’s 2 per cent inflation target. The US Fed’s current monetary tightening cycle started in March 2022. At present, the benchmark interest rate, or the federal funds rate, is at a 22-year high. Here are the six key things that may be on the Fed’s mind before making a rate decision today

The gross domestic product (GDP) of the US expanded at an annualized rate of 4.9 per cent in the third quarter, the US Bureau of Economic Analysis’ (BEA) first estimate showed on Thursday, October 6. The US economy grew at the fastest pace in nearly two years, buoyed by a strong consumer in spite of higher interest rates, ongoing inflation pressures, and a variety of other domestic and global headwinds.

The US GDP reading followed the 2.1 per cent growth recorded in the second quarter and surpassed Wall Street expectations of 4.2 per cent. Economists surveyed by Dow Jones expected the GDP to accelerate at 4.7 per cent, which also is adjusted for inflation. Read full story here

In its previous policy meeting on September 20, the US central bank left the benchmark interest rates unchanged, with a range of 5.25 per cent to 5.50 per cent. A majority of experts believe the Fed will maintain a pause on interest rates for the second consecutive time after the conclusion of the Federal Open Market Committee’s (FOMC) two-day meeting on Wednesday.

Domestic equity benchmarks the Nifty 50 and the Sensex extended their losses into the second consecutive session on Wednesday amid mixed global cues ahead of the US Fed policy outcome. Nifty 50 closed at 18,989.15, down 90 points, or 0.47 per cent. The 30-share pack Sensex ended 284 points, or 0.44 per cent, lower at 63,591.33. Read full story here

Stock market experts anticipate a muted response to the US Federal Reserve’s decision. Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said since no surprise is expected from the Fed meeting outcome, the market is unlikely to be impacted. 

But the high bond yields will weigh on markets and foreign institutional investors (FIIs) can be expected to continue selling. The consequent weakness in sectors like financials where the FIIs hold a major segment of their holding will provide buying opportunities for long-term investors, Vijayakumar said. Read full story here

In its previous policy meeting on September 20, the Fed chose to leave the benchmark interest rates unchanged, with a range of 5.25 percent to 5.50 percent.

Market participants and economists will be closely monitoring the Federal Reserve’s policy outcome for insights into the central bank’s assessment of inflation, the state of the US economy, and its expected interest rate path. Key questions revolve around whether the Fed will opt for interest rate reductions in the near term or maintain a more hawkish stance by signalling further rate hikes.

It’s widely expected that the Fed won’t raise rates this time around but will do so in December. That may give a boost to bond yields.

“As of now, we still think July was the last hike, but we do reckon that the resilience in both Inflation and growth is reinforcing the higher-for-longer stance even as financial and geopolitical shocks loom over the outlook,” said Madhavi Arora, lead economist at Emkay Global Financial Services.

Read the full story here