Fed signals concern about rise in Treasury yields
The Federal Reserve held interest rates at a 22-year high for a second straight meeting, while suggesting that the recent rise in Treasury yields may weigh on the economy and inflation.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation,” the U.S. central bank’s policy-setting Federal Open Market Committee said in a post-meeting statement published Wednesday, adding the word “financial” to language that previously referred only to credit conditions.
“The extent of these effects remains uncertain,” the Fed said, repeating that it “remains highly attentive to inflation risks.”
The decision left the target range for the benchmark federal funds rate unchanged at 5.25% to 5.5%, the highest since 2001, as part of a strategy to slow the pace of rate increases as the central bank nears the end of its tightening campaign.
The S&P 500 index and Treasuries extended their rally while the dollar slipped after the announcement.
Officials made minimal changes to the statement. One tweak was to upgrade their description of the pace of economic growth to “strong” from “solid” to reflect better economic data released since their September gathering.
Policymakers repeated that, in determining “the extent of additional policy firming that may be appropriate to return inflation to 2% over time,” they would take into account the cumulative tightening of monetary policy, as well as lag effects on the economy and inflation.
Heading into the decision, traders saw a 1-in-3 chance of a 25-basis-point increase by the end of January. The FOMC meets next on Dec. 12-13 and then on Jan. 30-31.
After rapidly raising borrowing costs from near-zero levels in March 2022 to
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