The FOMC voted to leave the federal funds rate unchanged at 5.25%-5.50% at yesterday’s policy meeting. Key quotes from Fed Chairman Powell yesterday regarding the FOMC’s views on rates and efforts to reduce inflation:
- Inflation has moderated since the middle of last year and readings over the summer were quite favorable
- We remain committed to bringing inflation down to our 2% goal and to keeping longer term inflation expectations well anchored
- Reducing inflation is likely to require a period of below potential growth and some softening of labor market conditions
- The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation, and the full effects of our tightening have yet to be felt
- Inflation has moderated since the middle of last year, and readings over the summer were quite favorable. But a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal
- The process of getting inflation sustainably down to 2% has a long way to go
Traders interpreted Powell’s comments from yesterday as primarily dovish, a signal that the FOMC has paused its rate hike cycle. U.S. Treasury prices are higher in all tenors following the rate announcement with the biggest gains in the long-term dates, leading to a flatter yield curve. The 20-year rate today is 5.014% vs. 5.2865 on Oct 31st; and the 30-year rate is 4.83%, down from 5.0949% on Oct 31st.
Lower yields are pressuring the USD today which is down vs. all G10/major currencies: -1.01% vs. NZD, -0.95% vs. MXN, -0.85% vs. EUR, -0.80% vs. AUD, -0.54% vs. CAD, -0.52% vs. JPY. The U.S. Dollar Index is -0.88% and trading at 105.945.
U.S. Weekly Initial Jobless Claims for the week ending Oct 28th were 217k, 210k estimate. Tomorrow’s economic calendar includes the Change in Nonfarm Payrolls for October, a key reading on labor trends.