The Federal Reserve revised its standpoint last month, with this shift being confirmed by prominent officials within the U.S. central bank in their recent statements. The reason behind this is the escalating uncertainties about the U.S. economic landscape, along with data fluctuations and tightening financial markets, which create potential risks to economic growth.
During the Federal Open Market Committee (FOMC) meeting held on September 19-20, policymakers acknowledged that the risks they confront extend beyond inflation alone. They now recognize that global energy and food markets, along with potential global growth impediments such as labor strikes and tightening financial markets, could unexpectedly and detrimentally affect the economy.
The FOMC meeting minutes revealed that a majority of participants still regard the future trajectory of the economy as highly uncertain. They argued for the need to exercise caution before the decision on another Fed's interest rate hike is made.
This viewpoint was supported by statements from senior Fed officials this week, which hinted that the recent uptick in U.S. Treasury yields might diminish the necessity for additional rate increases. Such a scenario could result in a slower pace of economic growth and inflation, in addition to any future actions taken by the central bank.
Movements in the bond market commenced after the Fed's last rate hike in July, a development evidenced by the analysis conducted during the September meeting. It demonstrated an upturn in real interest rates adjusted for inflation. These findings have been echoed in recent remarks made by U.S. Federal Reserve Governor Christopher Waller and Vice Chair of the Board of Governors Philip Jefferson.
During its most recent meeting last month, the U.S. central bank opted to maintain the existing interest rates, In the meantime, a majority of the 12 FOMC members once again signaled in their latest projections that there might be a need for another rate hike before the year comes to a close. This potential increase is seen as a measure to steer inflation back toward the Federal Reserve's targeted level of 2%.
Following the meeting, investors gradually ruled out the possibility of upcoming rate hikes. After the release of the meeting minutes on Wednesday, the probability of a key interest rate hike in November is reported to be under 10% according to CME FedWatch Tool. The likelihood of an increase at the meeting scheduled for December 12-13 stands at approximately 26%.
These developments unfold as policymakers emphasize the importance of dadditional work on critical annual inflation metrics, which continue to surpass the 3% threshold. That being said, some officials are beginning to entertain the idea that rate hikes may not be as pressing as previously thought.
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