Federal Reserve minutes are released several weeks after each Federal Open Market Committee meeting.
Nathan Howard/Bloomberg
A majority of Federal Reserve officials felt one more increase in the target federal funds rate would be appropriate when they last convened in September, but views appear to be shifting.
Several officials have said in recent days that higher bond yields diminish the need for more hikes this year.
(This is a developing story. Please check back soon for more detail and analysis. Below is a look at what market watchers were expecting before the minutes were released.)
Federal Reserve officials reinforced the message after the central bank’s Sept. 19-20 meeting that interest rates would stay higher for longer than previously expected, even though they declined to raise rates at that policy gathering.
Minutes of the meeting will be released Oct. 11, providing additional perspective as to where the majority of Fed officials see the economy heading. Their updated economic projections, released Sept. 20, indicated they don’t expect to cut interest rates until later in 2024.
The Fed minutes, released several weeks after each official Federal Open Market Committee meeting, can serve as a policy road map. During the September meeting, the Fed opted not to raise the benchmark interest rate, keeping the target for the federal-funds rate at 5.25%-5.50%.
But that decision, which had been widely expected, was overshadowed by the release of the committee’s latest Summary of Economic Projections, which revealed that officials were fairly optimistic on the U.S. economic outlook. Further, the SEP showed that they believed unemployment will be lower and economic growth better than previously forecast. Their interest-rate forecasts suggested that rates would stay above 5% through the end of next year.
Fed Chair Jerome Powell took a slightly more pessimistic tone, however, at his postmeeting press conference, declining to call a soft economic landing his baseline forecast. Powell also played down the latest so-called dot plot projections, noting they were simply a collection of individual rate forecasts rather than a future game plan.
Given the slightly muddled message, Fed watchers will be looking for more clarity from Wednesday’s release. To be sure, much has changed in the intervening weeks. Yields on
10-year U.S. Treasury bonds
surged to a 52-week high of 4.8% last week, and the latest payrolls data surprised economists by revealing employers added 336,000 jobs to the U.S. economy in September.
Yet, the higher yields contribute to tighter financial conditions, which could help keep the Fed’s rate pause in place, multiple Fed officials have said in recent days. “Financial conditions tightened substantially in recent months. Much of the tightening came from movements in longer-term interest rates,” Lorie Logan, president of the Federal Reserve Bank of Dallas, said Monday.
“Higher term premiums result in higher term interest rates for the same setting of the fed funds rate, all else equal. Thus, if term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary-policy tightening to achieve the FOMC’s objectives,” Logan said, echoing comments last week from San Francisco Fed President Mary Daly and Fed vice chair for supervision Michael Barr.
Analysts with the wealth-management firm Glenmede noted that the Fed’s higher-for-longer message conveyed by the economic projections are helping move yields. The narrative also weighed on stocks, which had a challenging September.
More upheaval could be ahead. “Equity and bond markets corrected modestly during Q3, but may not yet reflect current economic uncertainty,” Glenmede’s team wrote in a note Monday.
The Fed minutes will be released at 2 p.m. ET.
Write to Megan Leonhardt at [email protected]
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