By
Bhushan Akolkar
April 17th, 2024
The 10-year Treasury yield rose while the 2-year yield fell as investors considered the implication of the Federal Reserve’s meeting minutes.
Treasury yields in the US reacted differently to the Federal Reserve’s last meeting. Investors seem to weigh the implications of the minutes from the meeting, and whether or not there will be any forecast for interest rates and general inflation.
According to minutes of the Fed’s meetings, authorities are still worried about inflation. Officials also believe more rate hikes might be necessary to curb inflation as it is still far from the intended target. In response, the 10-year Treasury was at 4.292% after rising by 3 basis points. On the other hand, the 2-year Treasury fell by 1 basis point to 4.965%.
Many investors and stakeholders have hoped for a while that the last Fed rate increase of 25 basis points would end the continuous round of hikes. However, the Fed’s meeting would suggest otherwise. According to the minutes:
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”
Since the meeting in July, the consumer price index increased by 0.2%, while the producer price index climbed 0.3%. The former met expectations while the latter concluded slightly above.
According to a CNBC report on the minutes, participants agreed that “inflation pressures could be abating”. However, nearly all participants still believe that further hikes are necessary. The few who disagreed believe that the Fed should hold off on another increase in interest rates to properly watch economic conditions resulting from previous hikes.
A Few Pointers from the Fed Meeting
According to the minutes noted from the meeting, participants believe the economy would slow down a bit more. The Fed also has reason to state that there could be an increase in unemployment. However, the Fed fortunately dismissed an earlier projection that the US could enter a mild recession before the year ends.
There is also some Fed worry about real estate. Officials have noted that there are certain risks caused by a possible reduction in the value of commercial real estate (CRE). The document states that these risks could affect several financial institutions with exposure to CRE. Affected institutions may include banks and insurance companies.
Participants also noted possible risks of tightening or loosening monetary policy quicker than necessary. While there is still much to be done regarding inflation hitting the 2% target, levels have improved since the 9% recorded in June last year. The consumer price and consumption expenditures price indexes are performing better, pointing to general improvement.
However, the Fed is not done with interest rate hikes because assuming the worst is over may be risky. If the Fed stops raising rates too quickly, the economy could begin to spiral. Unfortunately, economic growth has not significantly improved even though the Fed has been hiking rates for several months.
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