Fed is widely anticipated to keep interest rates steady at 5.25-5.50%, marking a second consecutive pause. While the accompanying statement and Chair Jerome Powell’s press conference are expected to keep options open for future rate hikes, the focus will be on how firmly Powell adheres to his hawkish stance, hinting at the likelihood of an additional hike in December.
Recent comments from Fed policymakers have pointed to the rise in longer-term borrowing costs and the subsequent tightening of financial conditions as factors reducing the urgency for further tightening. Powell’s insights on this matter will be of particular interest to market participants.
However, substantial comments from Powell may be scarce at this juncture, given that the next set of economic projections, crucial for determining future policy, are set to be prepared and released in December. As a result, today’s FOMC decision might not deliver significant revelations.
In fact, a potentially more market-moving event could be the quarterly treasury refunding announcement preceding the FOMC decision. Investors already received a glimpse into the Treasury’s plans on Monday, with the announcement of a USD 776B debt auction for the last quarter of 2023. Key aspects that markets will scrutinize include the actual sizes of the auction and the mix of maturities.
The treasury market is currently grappling with a supply-demand mismatch, a significant factor contributing to the sharp rise in bond yields this year. Understanding how the Treasury plans to address this imbalance will be critical for investors, potentially overshadowing the FOMC decision in terms of immediate market impact.
