The Federal Reserve on Wednesday, October 12, 2022, released the minutes from its September meeting, at which the bank implemented the third consecutive three-quarter point interest rate increase and pledged to return monetary policy to a “sufficiently restrictive” stance to restore price stability.
Fed minutes reinforced the prevailing message that policymakers will remain committed to an aggressive hiking path and keep interest rates high until inflation shows signs of cooling off. This means that the bar is very high for a “policy pivot” at this time.
Stocks edged higher and bond yields dropped after minutes from the Federal Reserve’s September meeting were released this afternoon. The Dow Jones Industrial Average surged more than 144 points or 0.50%. The S&P 500 rose 0.20% and the Nasdaq Composite gained 0.45% after the release of the minutes.
Markets expect the rate of inflation to decline, so the minutes may have helped bond yields dip a bit. The 10-year Treasury yield fell below 3.9%, which helped boost equities prices.
The two-year Treasury yield, which often tracks the federal funds rate, was trading around 4.28%, just below the 4.3% level it hit before the minutes. It’s also just under its multi-year high, touched in late September. Now, the yield is having trouble moving higher. Yields rise as prices fall.
The greenback slipped immediately after the release of September’s FOMC minutes. The US Dollar Index has declined to session lows below 113.00, triggering moderate advances on its main rivals.
Gold remains volatile ahead of a pivotal inflation report that could increase the risk of even more Fed tightening. Gold prices fell after the FOMC minutes indicating some policymakers are getting ready to calibrate their tightening path. In global markets, gold was priced at $1,675.16 per oz. The yellow metal won’t do much movement until the inflation report comes in and that means prices should bounce between the $1670 and $1690 levels, according to analysts.
Bitcoin continues to hover around the $19,000 level as traders await tomorrow’s inflation report that could make or break risk appetite. Bitcoin could break out after the inflation data as Wall Street will have a better understanding of the Fed’s needs to maintain an aggressive tightening stance beyond the November Fed meeting. If inflation stays high, Bitcoin could slip to last month’s low just ahead of the $18,000 level.
US central bank decided to hike the key lending rate by 75 basis points for the third time in a row during the meeting to curb ongoing inflationary pressures. This brought the rate to a target range of 3% to 3.25%.
Now markets are equally focused on Thursday morning’s release of the September consumer price index. A hotter-than-expected inflation data would push the market assumption on fed rate hikes higher.