Big spending, mixed rewards

Ipek Ozkardeskaya ipekScope

The Federal Reserve (Fed) left its interest rates unchanged yesterday, as widely expected ahead of next week’s midterm elections in the US, although two members favoured a 25bp hike, among them Lisa Cook, whom the US president wants to fire. Huh.

The Fed pointed to strong growth, resilient domestic spending, robust investment and a broadly stable unemployment rate, giving it room to keep fighting inflation. Energy inflation remains the immediate concern: Warsh warned that rising energy and related prices must be prevented from spreading across the economy. As such, December remains live, without a commitment.

In summary, the Fed delivered breathing space, with little reassurance that borrowing costs have peaked. Fed funds futures imply around an 80% chance of a 25bp hike in December.

But the US 2-year yield eased after the meeting to around 4.70%, while the 2–10-year spread widened above 30bp as longer-term yields rose. Equity markets took the rather hawkish announcement in their stride: major US indices edged higher, with the technology-heavy Nasdaq 100 leading gains.

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Author

Ipek Ozkardeskaya

ipekScope

Ipek Ozkardeskaya began her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked in HSBC Private Bank in Geneva in relation to high and ultra-high-net-worth clients.

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