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Following minutes from the November FOMC meeting that increases in interest rates will taper, US Treasury yields drop slightly on Friday.
US Treasury yields dipped Friday as investors mulled over the recently published minutes from the Federal Reserve’s November meeting. Takeaways from that meeting which took place barely two days ago, suggest that the magnitude of subsequent rate hikes would be slowing down. However, as of 4 am ET, the yield on the benchmark 10-year Treasury note was down by two basis points to 3.6887% on the interest rates development. In addition, the yield on the 2-year Treasury note also fell by more than two basis points around the stated time, and last traded at 4.4567%.
Markets reopened for a half day of trading following the Thanksgiving break on Thursday and continued to digest the Fed’s November minutes. The summary of the Fed’s deliberations suggested that it was necessary to slow the pace and size of rate hikes for economic and fiscal stability. Part of the minutes, which echoed the given prior assumption by marketplace observers, read:
“A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee’s goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate.”
Treasury Yields & Crypto Assets to Likely Receive Sustainable Boost from Tapering of Interest Rates
The Federal Open Market Committee (FOMC) agreed in principle to raise interest rates in smaller increments. This development means that although rate hikes will continue well into 2023, they will likely be less than the 0.75 basis point increment seen on numerous occasions this year. The FOMC decision on interest rates is already impacting Treasury yields and the digital currency space. Most importantly, this decision should also resonate well with analysts and economists who had warned of a recession due to previous steep hikes.
The initial reaction to the Fed’s November minutes positively reflected in the crypto space, with the prices of digital assets rallying temporarily. When the news broke yesterday, Bitcoin (BTC) was trading around 5.5% higher at $16,500. Meanwhile, the total crypto market cap climbed to roughly $781 billion.
Fed not Out of The Woods Yet
Despite the consensus assumption that the Fed will cut down to a 0.5 percentage point increase in December, some analysts still preach caution. For instance, St. Louis Federal Reserve President James Bullard stated last week that the apex bank still had its work cut out regarding inflation containment. Pointing out that rate increases have had only a limited effect on inflation, Bullard noted:
“Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023.”
The FOMC also seemed to acknowledge Bullard’s sentiment at its latest meeting. For example, part of the minutes suggested that the fiscal committee remains uncertain about how significantly and swiftly their policies would impact the broader economy. Furthermore, Fed officials said that inflation still remains its most significant factor to consider regarding a slowdown of rate increases.