Fed to pause rate hikes, but maybe not for long
TLT•The Fed is expected to hold rates at 3.75%-4.00% this week, while investors anticipate further hikes as inflation concerns persist. Rate futures priced a 90% chance of a hold as of Friday.
1. Expected pause
Federal Reserve policymakers have signaled they will leave rates in the 3.75%-4.00% range at their October 27-28 meeting. A sharp rise in Treasury yields after the September rate hike helped prompt officials to wait for more data; rate futures priced a 90% chance of a hold as of Friday.
2. Inflation remains a concern
Inflation picked up and broadened last month, while economic growth accelerated last quarter, according to government reports expected after the decision. Economists project September inflation at 3.6%, up from 3.4% in August. Nationwide Chief Economist Kathy Bostjancic said recent data supported a rate hike, citing a strong economy, consumer and labor market, and worsening inflation.
3. Signals and dissent
Investors will watch the Fed’s statement and Chair Kevin Warsh’s news conference for clues about a possible future hike. EY-Parthenon Chief Economist Gregory Daco said Warsh will need to explain the pause without undermining the Fed’s credibility on inflation. BMO Chief US Economist Scott Anderson expects at least one dissent and now forecasts two more rate hikes.
