Federal Reserve Chair Jerome Powell is due to address the Economic Club of New York today, Thursday. Investors and economic experts are keenly awaiting insights on monetary policy, particularly in light of the central bank's "blackout period" before an upcoming meeting.
RSM chief economist Joe Brusuelas and others expect Powell to reaffirm his stance on interest rates, praising lower inflation while also indicating potential further rate hikes. The Federal Reserve has maintained interest rates at 5.25% to 5.5%, the highest since 2001, and officials have suggested another increase before the year ends, indicating a prolonged period of peak rates.
This comes amid an inflation rate that exceeds the Fed's 2% target, despite a drop from 9.1%. The Consumer Price Index is used to measure this inflation rate. The CME Group's (NASDAQ:CME) FedWatch tool indicates that traders increasingly anticipate a rate hike in December, possibly prompted by strong consumer spending and labor market resilience, as pointed out by Nationwide chief economist Kathy Bostjancic.
Higher interest rates have increased borrowing costs across various sectors, including business loans, credit cards, auto loans, and home equity lines of credit. Notably, 30-year mortgages have surpassed 7% for the first time in years.
Following a Fed meeting in September, a strategy was outlined to combat inflation by maintaining high-interest rates for an extended period to boost economic growth. This led to a surge in yields on the 10-year Treasury bond note ahead of the October 31st Fed meeting. The yield index rose by six basis points to 4.96%, while the two-year Treasury yield increased by two basis points to 5.23%.
These increases are primarily driven by concerns that the Fed might raise benchmark rates or keep them elevated for longer to tackle inflation. Other contributing factors include a robust economy, a strong job market, rising government deficits, and an increased term premium. Investors have been recalibrating trading prices through 2024 in anticipation of continued interest rate hikes by the Federal Reserve.
Powell's upcoming statement holds the potential to either disrupt or reassure the current yield market ahead of the central bank's next policy decision. The International Monetary Fund (IMF) has also highlighted global economic risks stemming from the ongoing Israel-Gaza war.
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