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Market Update

FOMC meeting minutes provide insight during the holiday week

November 27, 2023
  • amol dhargalkar headshot


    Amol Dhargalkar

    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.

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