The Federal Reserve again raised rates by 75 bp to a target range of 3.75% to 4.0% at their November meeting. The market was pricing in 98.0% for 75 bps and 2.0% for 50 bps. It was a unanimous vote. Markets reacted to the tone of possible rate hikes slowing by selling the US dollar and buying equities indices after the release. In determining the pace of future increases is the key dovish line. The Fed said they are prepared to adjust policy as appropriate and are highly attentive to inflation risks.
Federal Reserve FOMC Statement
Federal Reserve Announcement Wednesday 2 November 2022 14:00:00 ET
The FOMC raised the target rate by 75 basis points to 3.75-4.00% vs 3.00%-3.25%
Conference To Follow At 2.30 ET PM With Chairman Powell
Highlights
- Decision was unanimous for raise
- Recent indicators point to modest growth in spending and production
- Repeats that the Committee is highly attentive to inflation risks
- Repeats that ” The Committee anticipates that ongoing increases in the target range will be appropriate”
- Highlights cumulative tightening and lags in policy
Market Reaction After FOMC
The US dollar moved lower
- EURUSD up 70 pips since the release to 0.9940 and similar across the board for USD.
Stocks higher
- US equities turned a decline into a 0.6% gain.
Interest rates have eased especially in shorter tenors
U.S. Treasuries saw fresh highs in reaction to the November FOMC Statement. Wall Street Journal’s Fed insider was quick to point out that the Statement noted that the cumulative effect of rate hikes will be taken into consideration when determining the pace of future increases. This is being viewed as an acknowledgement that a slower pace of rate hikes may become appropriate soon. The 10-yr note and shorter tenors trade just below their post-FOMC highs while the long bond has reversed its entire move, returning to levels from the early afternoon.
Yields After Release on Day:
- 2-yr: -8 bps to 4.45%
- 3-yr: -7 bps to 4.41%
- 5-yr: -9 bps to 4.17%
- 10-yr: -5 bps to 4.00%
- 30-yr: -3 bps to 4.10%
November 2 FOMC STATEMENT CHANGES via @Newsquawk
The lines of note that change FOMC: “In determining the pace of future increases … the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
The full statement from the Novemeber 2022 Fed Decision
Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.
Implementation Note issued Nov 2, 2022
Source: Federal Reserve
From the TradersCommunity Research Desk