The Fed hinted at a cut in the interest rate, bond yields responded with a drop
The Fed has made a significant step towards investors’ expectations this week. Eight members of the committee expect a rate cut in the coming months. Powell claims that the opponents also hinted at cases in which an expansionary policy would be justified. The probability of an interest rate cut next month jumps to 100%
The Federal Open Market Committee (FOMC) released its interest rate decision for the coming months. As expected, the Fed chose to leave the federal interest rate at 2.25% -2.5% at the evening meeting, with the IOER rate remaining at 2.35%. However, the bank has taken a particularly big step toward the assessments in the markets.
The official position of the bank claims that there will not be an interest rate cut in the coming months, but the Fed’s net chart shows a sharp shift in the committee’s background to market expectations. The bank’s point-of-view plan points out that seven out of the 17 members of the committee expect the interest rate to fall by 50 basis points in the next few months, and another representative expects a 25 basis point drop. In addition, at the press conference, Powell argued that even the representatives who did not vote for the interest rate cut this year pointed to cases in which expansionary policy is justified.
In the background of weak macro data in recent weeks, the Fed claims that market uncertainty has risen and that it is “closely monitoring” developments. The Fed lowered the definition of US growth from stable to “moderate.” The sharp decline in inflation expectations is also noted in Fed.
The Fed did not address the issue of the process of reducing the balance sheet, which is expected to cut the market by another $ 120 billion by the end of September, which is expected to boost the liquidity crisis in the markets.
US bond yields went down sharply in the background of the Fed’s folding. The 10-year yield fell to 2.03%, and the 3-year yield fell to only 1.7%. The dollar moved to a drop of 0.5%.