It appears that members of the Federal Reserve System (Fed), the US central bank, shared the view that the base interest rate is at or near the peak at the Open Market Committee (FOMC) meeting held last month. The committee members judged that it would be appropriate to lower the interest rate in 2024, but expressed a cautious view that additional interest rate increases would not be considered a policy option as uncertainty is very high in the economy.
According to the December FOMC minutes released by the Federal Reserve on the 3rd, while discussing the outlook for future monetary policy, Federal Reserve members judged that “the benchmark interest rate appears to have reached the peak or near the peak of this tightening cycle.” However, he emphasized that the actual monetary policy path will vary depending on how the economic situation develops.
At the December meeting, members agreed that interest rates would be lowered in 2024, the minutes said. Based on the forecasts submitted by the Federal Reserve members with their respective opinions, almost all members judged it appropriate to lower the benchmark interest rate by the end of 2024 to reflect the outlook that inflation will improve, the minutes said. However, he expressed a cautious stance on the timing of the interest rate cut.
The minutes said, “The participating members emphasized that their outlook is related to unusually high uncertainty and that they cannot rule out the possibility that future economic conditions will develop in a way that makes additional interest rate increases appropriate.”
This is to reemphasize the position that additional austerity cards will not be left off the policy table in response to changes in economic conditions. The December FOMC minutes released today are interpreted as a reconfirmation of the contents of Federal Reserve Chairman Jerome Powell’s conference held immediately after the meeting.
At a press conference after the FOMC, Chairman Powell said, “The question of when it would be appropriate to return to the level of austerity policies will begin to come into view,” and added, “This was also discussed at today’s meeting.” As the market assessed that the Federal Reserve had ended interest rate hikes and signaled a policy change (pivot), a rally continued in the stock market, with government bond yields plummeting and the Dow Jones index exceeding its all-time high.
As the Federal Reserve’s position was reaffirmed in the minutes of the day, U.S. Treasury yields fell. According to the electronic trading platform Tradeweb, the yield on 10-year U.S.
Treasury bonds rose to 4.0% at 10:30 a.m. on this day but fell 9bp (1bp = 0.01% point) to 3.91% at 3 p.m., after the minutes were announced.