FOMC meeting minutes provide insight during the holiday week
Managing Partner, Chairman
Global Head of Corporates
Kennett Square, PA
The FOMC meeting minutes release headlined last week’s economic news. In the release, the Committee noted they see conditions continuing to tighten while inflation remains above their target.
FOMC meeting minutes
Aiding the tightening economic conditions was an increase in real rates as inflation readings edged lower and long-term rates rose. FOMC members also stated that treasury market liquidity is not to blame for the rate increase and pointed to the increase in the term premium. However, since the FOMC meeting at the beginning of November, markets have seen lower demand at longer-maturity treasury auctions, causing higher volatility. Lower demand likely stems from a pullback in foreign buyers like Japan and China. The increase of the term premium is showing that, even though markets expect inflation to be controlled in the long run and the Fed Funds Rate to come down, a higher return is being demanded for increased uncertainty and risk likely associated with the rising concern over the U.S. government’s debt situation. This has added to the relative stability in short-term markets, especially as the Federal Reserve reported lower demand for Overnight Reverse Repurchase agreements (ON RRP) and subsequently increasing liquidity.
Holiday season slowdown
In the minutes, members commented on the continued strength of the U.S. consumer’s balance sheet. Last month the Federal Reserve Survey of Consumer Finances, released once every three years, highlighted this by stating median household wealth was up 37% from 2019 to 2022. This is largely attributable to the increase in housing prices as home equity represents the majority of many Americans’ wealth. This dramatic increase may be on unstable grounds as comments in the meeting minutes pointed out that the housing market may be overextended when comparing fundamentals to historical figures. Michigan’s consumer sentiment report also posted a decline last Wednesday for November but still came in higher than expected. With credit card debt also climbing, consumer spending is expected to slow into the holiday season.
Since the release of the Fed meeting minutes, markets have remained firm in the belief that we will not see any more rate hikes in this cycle and predict the first cut to come in the middle of next year.
Oil prices closed lower for the week on Friday at $75.18 per barrel for WTI crude futures after OPEC delayed their meeting until November 30. They are largely expected to cut production after oil prices tumbled off of early fall highs around $93 per barrel.
The week ahead
We begin a busy week on Monday with 3-month, 6-month, 2-year, and 5-year treasury auctions. On Tuesday, the Conference Board will release its Consumer Confidence report, which came in at 102.6 the month prior. Wednesday we will see the second release of U.S. QoQ GDP after a surprising initial release of 4.9%. CPI readings for the Eurozone and U.S. Core PCE will come out on Thursday. Jerome Powell will cap off the week with a fireside chat on Friday.
Subscribe to receive our market insights and webinar invites
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.23-0272
Our featured insights
Mixed sentiment in markets as inflation outpaces expectations
The most recent CPI reading strengthened fears that inflation will persist at its current levels, leading markets to reevaluate the timing and quantity of upcoming interest rate cuts.
Navigating rate cuts: Fed caution vs. market optimism
A relatively quiet week on the economic data front made for a loud week of Fed speak. Fed officials continue to reiterate that the FOMC does not want to act too soon or too quickly regarding rate cuts. The market, on the other hand, outpaces the Fed’s path.
Interest rate collars gain appeal as rate cut uncertainty ensues
Interest rate markets remain uncertain within the United States. Although the market expects rate cuts, continued strength in the U.S. economy and labor market provides the potential for inflation to re-accelerate or remain elevated. As a result, corporates with floating-rate debt are considering...
Economic indicators continue to show a strong U.S. economy
The fourth quarter of 2023 included strong consumer spending and manufacturing growth, but concerns continue to linger about the sustainability of spending tied to a decreasing savings rate. The Federal Reserve is expected to maintain rates in their first 2024 meeting, with potential cuts later...
Fed stays firm, consumers keep spending amid rising shipping costs from Red Sea tensions
Fresh retail sales data showed that consumers have yet to be scared off by higher prices. Across the Atlantic, shipping concerns have arisen as unrest in the Red Sea has driven prices up and forced companies to redirect cargo ships around the Cape of Good Hope.
Markets react to the last CPI and PPI reports before the next Fed meeting
New York Fed President John Williams’ comments conflict with the market’s unwavering hope for a year full of rate cuts in 2024.
Labor strength, Red Sea disruptions, and unraveling the Fed’s rate outlook
2024 kicked off the year with a whipsaw in rates and a decline in equities, reversing some of the movement observed in the final days of 2023. The S&P 500 closed the first week of the year down, while the 10-year swung 20 basis points from its high to its low — closing at 4.04% — as the market...