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4 min ago

Don't expect Chair Powell to give too much away

From CNN's Matt Egan

Wall Street is extremely confident the Federal Reserve won’t raise rates today, pricing in a 98% chance of no change (and a 2% chance of a rate cut).

But the real question is whether Fed Chair Jerome Powell strongly hints that the Fed is done altogether. Knowing how unpredictable the past four years have been, Powell is unlikely to box himself in by promising anything.

But Powell also knows Fed officials may not need to do much more work for a simple reason: The bond market has already done a ton of work for them. Uncomfortably high bond rates will slow the economy by raising borrowing costs and tightening market conditions.

4 min ago

Markets are down ahead of Fed decision

US stock futures were lower Wednesday ahead of the Federal Reserve’s rate announcement. Dow futures fell 100 points, or 0.3%. S&P 500 futures were 0.3% lower. Nasdaq futures were down 0.3%. 

The market was rocky for most of October: The Dow fell 1.4% and the S&P 500 slid 2.2%, with both indexes notching their first three-month streak of declines since March 2020. The Nasdaq Composite slipped 2.8%.

Surging bond yields, the Israel-Hamas war and mixed earnings from Big Tech companies dragged down stocks.

Energy saw the steepest declines among the S&P 500's sectors, while information technology, communication services and consumer staples fell but outperformed the benchmark index. Only utilities ended the month higher.

But investors are keenly tuned in to the Federal Reserve's next interest rate decision, even though a pause is almost 100% expected.

The Treasury Department is also set to release its quarterly refunding statement that outlines its borrowing needs and the steps it plans to fulfill over the next three months.

11 hr 23 min ago

What to expect from today’s Fed meeting

The Federal Reserve is widely expected to announce that it will hold interest rates steady for the second time in a row, after 11 straight hikes.

But that doesn't mean we're done with rate increases.

Fed Chair Jerome Powell has made it very clear that officials are still watching key pieces of economic data for any sign that inflation has reaccelerated.

“Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully,” Powell said last month in New York. “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks.”

14 hr 32 min ago

When could we see another hike?

An additional rate hike could come next month, at the Federal Reserve's December 12-13 meeting.

That would likely be the very last one in this cycle. And Fed officials could even skip that one, too, if upcoming data shows that inflation is continuing to cool.

Still, hawkish Fed officials — who back a more aggressive approach to addressing inflation — believe there’s more room to raise rates.

“Inflation remains well above the FOMC’s 2% target. Domestic spending has continued at a strong pace, and the labor market remains tight,” said Fed Governor Michelle Bowman last month in Morocco. “This suggests that the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC’s goal.”

For now, the Fed is performing a balancing act between the risk that inflation could re-accelerate and the risk that the central bank could inflict unnecessary economic damage.

11 hr 33 min ago

What's behind the big decision

If the economy is growing too fast, why isn't the Federal Reserve doing something about it? 

A: The Fed has been doing something about it for the past 18 months. By raising interest rates to the highest level in 22 years, the central bank has slowed the economy in many ways. For instance, fewer jobs are being added each month compared to a year ago. The problem is, it can take some time for the impact of interest rates to be felt across the economy. That's why the Fed is trying to proceed cautiously right now.

Bond yields are already so high. Isn't that basically an interest rate hike anyway?

A: Yes. Bond yields, namely the yield on the 10-year Treasury note, dictate the interest rates on credit cards, mortgages and auto loans. When those rates go up, borrowing money becomes more expensive. Hence, they're essentially accomplishing the same thing a Fed rate hike would. And that's one of the reasons the Fed likely won't be announcing any interest rate increases on Wednesday afternoon. 

So are we getting that rate cut any time soon?

A: The Fed could be done hiking — but they're going to keep rates high for a while.

14 hr 19 min ago

Rate hikes have not slowed down the economy — yet

Even though the Federal Reserve rolled out 11 rate hikes in a row to cool demand from businesses and consumers, the US economy has displayed remarkable resilience.

Economic growth expanded at an annualized 4.9% rate in the third quarter, the strongest rate in two years, with consumer spending, America’s economic engine, growing at its fastest pace since 2021.

Meanwhile, employers have continued to hire at a solid clip, adding 336,000 jobs in September, the biggest monthly gain since January, while the unemployment rate held at a low 3.8% that month. The Labor Department releases October data gauging the job market this Friday.

Worker filings for unemployment benefits remain at historically low levels, workers continue to rake in solid pay gains, and job openings continue to exceed the number of unemployed people actively seeking work by millions.

Instead of being in the throes of a recession, as predicted by economists in the aftermath of the spring banking crisis, the US economy is humming along just fine. But that could change, and soon.

11 hr 19 min ago

Bond yields could end up doing the Fed's job

Federal Reserve Chair Jerome Powell has said soaring bond yields are currently playing an important role in pulling on the economy’s reins, since Treasuries are the benchmark used to price debt.

That means higher yields lead to higher rates on car loans and the cost of mergers and acquisitions, for example.

Banks have also toughened their lending standards and the resumption of student loan payments last month means Americans’ budgets are getting squeezed. Some research also suggest that US consumers have likely already drawn down the excess savings many had accumulated during the pandemic.

The US economy is also contending with two wars, trillions in federal debt, a frozen housing market, and geopolitical tensions in the Middle East, which could cause oil prices to spike if the Israel-Hamas war escalates.

The economic landscape has clearly become more difficult since the beginning of the year.

13 hr 22 min ago

What's in the Fed's famous "tool box"?

The Federal Reserve’s fight against inflation is about to enter a new phase.

Over the span of about a year and a half, the Fed aggressively raised interest rates to their highest level in 22 years. Raising rates is the Fed’s most famous tool to keep inflation in check and maximize employment — its two fundamental functions as mandated by Congress.

But that’s not the only tool available.

The Fed also manages a multitrillion-dollar balance sheet that includes government securities.

It is also used as a macroeconomic tool to either weaken or strengthen the economy.

Here's how that works: The Fed holds assets like Treasuries, mortgage-backed securities, and loans extended to banks. It also holds liabilities such as currency, bank reserves and “reverse repurchase agreements,” which are short-term contracts to sell securities and then buy them later at a higher price.

Whenever the Fed wants to stimulate the economy, it expands its securities holdings — a strategy known as “quantitative easing,” which it did to help the economy recover from the Great Recession.

In the early days of the pandemic, the Fed sharply beefed up its assets portfolio — purchasing a staggering $1.5 trillion in Treasuries in March and April 2020 to stabilize the financial system and cushion the effects of shutdowns on the economy. It continued to gobble up hundreds of billions in government securities throughout 2020.

But recently, the Fed has been doing the opposite.

For over a year now, the Fed has been steadily shrinking its balance sheet to help cool the economy. That reduction is known as “quantitative tightening” or a “balance sheet runoff.”

11 hr 28 min ago

Not everyone at the Fed is on the same page

All Federal Reserve officials agree that inflation needs to be defeated in a timely fashion. However, they disagree on whether the central bank has already done enough.

Some officials think the Fed must raise interest rates more to tame inflation, while others think the rate tightening that’s been done will continue to further ease rising prices. It takes around a year for the Fed’s actions to be felt across the economy.

San Francisco Fed President Mary Daly said recently that “if we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work.” Meanwhile, Fed Governor Michelle Bowman said recently that she continues “to expect that further rate increases will likely be needed to return inflation to 2% in a timely way.”

But even if Fed officials are divided, it doesn’t really matter. Divergent opinions at the Fed are simply a feature of the central bank during pivotal junctures.

“It generally should be seen as a good thing that they have different opinions. That’s arguably a design feature of the Committee — that there are varying views that get aired, otherwise there’s a risk of group-think,” Michael Feroli, chief US economist at JPMorgan, told CNN.

The Federal Open Market Committee, the Fed committee that sets monetary policy, has reached unanimous policy decisions nearly every meeting this entire rate-hiking cycle that began in March 2022.

“It’s also not that surprising that the decisions have been unanimous. The Fed started from so far behind the curve that catching up was an obvious decision. Now that we are getting closer to the end is when we see more differences open up,” Feroli said.

Fed officials in that committee with voting power have the option to dissent, but it’s only happened twice this cycle. The last dissent was from former Kansas City Fed President Esther George more than a year ago.

That’s when a division could matter: if multiple officials dissent. But that’s extremely unlikely, even right now.

“A dissent just means someone is violently opposed to the decision that the group is making. You have to have a very high degree of conviction to do that,” Ed Al-Hussainy, Columbia Threadneedle Investments senior interest rates and currency analyst, told CNN.

It’s also worth noting that voting members at the FOMC change at the start of each year.

Wall Street is extremely confident the Federal Reserve won’t raise rates today, pricing in a 98% chance of no change (and a 2% chance of a rate cut).

But the real question is whether Fed Chair Jerome Powell strongly hints that the Fed is done altogether. Knowing how unpredictable the past four years have been, Powell is unlikely to box himself in by promising anything.

But Powell also knows Fed officials may not need to do much more work for a simple reason: The bond market has already done a ton of work for them. Uncomfortably high bond rates will slow the economy by raising borrowing costs and tightening market conditions.

US stock futures were lower Wednesday ahead of the Federal Reserve’s rate announcement. Dow futures fell 100 points, or 0.3%. S&P 500 futures were 0.3% lower. Nasdaq futures were down 0.3%. 

The market was rocky for most of October: The Dow fell 1.4% and the S&P 500 slid 2.2%, with both indexes notching their first three-month streak of declines since March 2020. The Nasdaq Composite slipped 2.8%.

Surging bond yields, the Israel-Hamas war and mixed earnings from Big Tech companies dragged down stocks.

Energy saw the steepest declines among the S&P 500's sectors, while information technology, communication services and consumer staples fell but outperformed the benchmark index. Only utilities ended the month higher.

But investors are keenly tuned in to the Federal Reserve's next interest rate decision, even though a pause is almost 100% expected.

The Treasury Department is also set to release its quarterly refunding statement that outlines its borrowing needs and the steps it plans to fulfill over the next three months.

The Federal Reserve is widely expected to announce that it will hold interest rates steady for the second time in a row, after 11 straight hikes.

But that doesn't mean we're done with rate increases.

Fed Chair Jerome Powell has made it very clear that officials are still watching key pieces of economic data for any sign that inflation has reaccelerated.

“Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully,” Powell said last month in New York. “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks.”

An additional rate hike could come next month, at the Federal Reserve's December 12-13 meeting.

That would likely be the very last one in this cycle. And Fed officials could even skip that one, too, if upcoming data shows that inflation is continuing to cool.

Still, hawkish Fed officials — who back a more aggressive approach to addressing inflation — believe there’s more room to raise rates.

“Inflation remains well above the FOMC’s 2% target. Domestic spending has continued at a strong pace, and the labor market remains tight,” said Fed Governor Michelle Bowman last month in Morocco. “This suggests that the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC’s goal.”

For now, the Fed is performing a balancing act between the risk that inflation could re-accelerate and the risk that the central bank could inflict unnecessary economic damage.

If the economy is growing too fast, why isn't the Federal Reserve doing something about it? 

A: The Fed has been doing something about it for the past 18 months. By raising interest rates to the highest level in 22 years, the central bank has slowed the economy in many ways. For instance, fewer jobs are being added each month compared to a year ago. The problem is, it can take some time for the impact of interest rates to be felt across the economy. That's why the Fed is trying to proceed cautiously right now.

Bond yields are already so high. Isn't that basically an interest rate hike anyway?

A: Yes. Bond yields, namely the yield on the 10-year Treasury note, dictate the interest rates on credit cards, mortgages and auto loans. When those rates go up, borrowing money becomes more expensive. Hence, they're essentially accomplishing the same thing a Fed rate hike would. And that's one of the reasons the Fed likely won't be announcing any interest rate increases on Wednesday afternoon. 

So are we getting that rate cut any time soon?

A: The Fed could be done hiking — but they're going to keep rates high for a while.

Even though the Federal Reserve rolled out 11 rate hikes in a row to cool demand from businesses and consumers, the US economy has displayed remarkable resilience.

Economic growth expanded at an annualized 4.9% rate in the third quarter, the strongest rate in two years, with consumer spending, America’s economic engine, growing at its fastest pace since 2021.

Meanwhile, employers have continued to hire at a solid clip, adding 336,000 jobs in September, the biggest monthly gain since January, while the unemployment rate held at a low 3.8% that month. The Labor Department releases October data gauging the job market this Friday.

Worker filings for unemployment benefits remain at historically low levels, workers continue to rake in solid pay gains, and job openings continue to exceed the number of unemployed people actively seeking work by millions.

Instead of being in the throes of a recession, as predicted by economists in the aftermath of the spring banking crisis, the US economy is humming along just fine. But that could change, and soon.

Federal Reserve Chair Jerome Powell has said soaring bond yields are currently playing an important role in pulling on the economy’s reins, since Treasuries are the benchmark used to price debt.

That means higher yields lead to higher rates on car loans and the cost of mergers and acquisitions, for example.

Banks have also toughened their lending standards and the resumption of student loan payments last month means Americans’ budgets are getting squeezed. Some research also suggest that US consumers have likely already drawn down the excess savings many had accumulated during the pandemic.

The US economy is also contending with two wars, trillions in federal debt, a frozen housing market, and geopolitical tensions in the Middle East, which could cause oil prices to spike if the Israel-Hamas war escalates.

The economic landscape has clearly become more difficult since the beginning of the year.

The Federal Reserve’s fight against inflation is about to enter a new phase.

Over the span of about a year and a half, the Fed aggressively raised interest rates to their highest level in 22 years. Raising rates is the Fed’s most famous tool to keep inflation in check and maximize employment — its two fundamental functions as mandated by Congress.

But that’s not the only tool available.

The Fed also manages a multitrillion-dollar balance sheet that includes government securities.

It is also used as a macroeconomic tool to either weaken or strengthen the economy.

Here's how that works: The Fed holds assets like Treasuries, mortgage-backed securities, and loans extended to banks. It also holds liabilities such as currency, bank reserves and “reverse repurchase agreements,” which are short-term contracts to sell securities and then buy them later at a higher price.

Whenever the Fed wants to stimulate the economy, it expands its securities holdings — a strategy known as “quantitative easing,” which it did to help the economy recover from the Great Recession.

In the early days of the pandemic, the Fed sharply beefed up its assets portfolio — purchasing a staggering $1.5 trillion in Treasuries in March and April 2020 to stabilize the financial system and cushion the effects of shutdowns on the economy. It continued to gobble up hundreds of billions in government securities throughout 2020.

But recently, the Fed has been doing the opposite.

For over a year now, the Fed has been steadily shrinking its balance sheet to help cool the economy. That reduction is known as “quantitative tightening” or a “balance sheet runoff.”

All Federal Reserve officials agree that inflation needs to be defeated in a timely fashion. However, they disagree on whether the central bank has already done enough.

Some officials think the Fed must raise interest rates more to tame inflation, while others think the rate tightening that’s been done will continue to further ease rising prices. It takes around a year for the Fed’s actions to be felt across the economy.

San Francisco Fed President Mary Daly said recently that “if we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work.” Meanwhile, Fed Governor Michelle Bowman said recently that she continues “to expect that further rate increases will likely be needed to return inflation to 2% in a timely way.”

But even if Fed officials are divided, it doesn’t really matter. Divergent opinions at the Fed are simply a feature of the central bank during pivotal junctures.

“It generally should be seen as a good thing that they have different opinions. That’s arguably a design feature of the Committee — that there are varying views that get aired, otherwise there’s a risk of group-think,” Michael Feroli, chief US economist at JPMorgan, told CNN.

The Federal Open Market Committee, the Fed committee that sets monetary policy, has reached unanimous policy decisions nearly every meeting this entire rate-hiking cycle that began in March 2022.

“It’s also not that surprising that the decisions have been unanimous. The Fed started from so far behind the curve that catching up was an obvious decision. Now that we are getting closer to the end is when we see more differences open up,” Feroli said.

Fed officials in that committee with voting power have the option to dissent, but it’s only happened twice this cycle. The last dissent was from former Kansas City Fed President Esther George more than a year ago.

That’s when a division could matter: if multiple officials dissent. But that’s extremely unlikely, even right now.

“A dissent just means someone is violently opposed to the decision that the group is making. You have to have a very high degree of conviction to do that,” Ed Al-Hussainy, Columbia Threadneedle Investments senior interest rates and currency analyst, told CNN.

It’s also worth noting that voting members at the FOMC change at the start of each year.