Last week, the Federal Reserve lowered its key interest rate by 0.25%, setting a new range of 3.75% to 4%. The vote wasn’t unanimous: Miran wanted a larger 0.50% cut, while Schmid opposed any cut at all.
The Fed also announced it will stop shrinking its balance sheet, a move that usually supports bond prices. However, it will reinvest money from mortgage-backed securities into short-term Treasury Bills instead of longer-term bonds, which means less help for long-term interest rates.
The Treasury could offset this by issuing more short-term debt, but markets haven’t fully reacted to that possibility. The Fed plans to stop the runoff and begin reinvesting on December 1.
Initially, bond prices barely changed, but yields rose after Fed Chair Jerome Powell struck a “hawkish” tone in his press conference. When asked about another possible rate cut on December 10, he said it was “not a foregone conclusion — far from it.”
Powell’s comments suggest the Fed won’t cut rates again unless stronger economic data arrives before the next meeting. That may depend on how quickly the government shutdown ends and data collection resumes.
Source: www.mbshighway.com
By: Jon Iacono