As uncertainty in the global economy rapidly increases due to the war in the Middle East, and government bond yields (market interest rates) continue to soar, the possibility of an interest rate hike in the United States is greatly decreasing.
First of all, there are growing predictions that the Federal Reserve will temporarily suspend interest rate increases due to the war in the Middle East.
◇ Possibility of stopping interest rate hikes, US stock market rally for two days in a row
: With these ingredients, the U.S. stock market rallied for two days in a row despite the fact that an all-out war broke out in the Middle East.
On the 10th (local time) in the New York stock market, the Dow rose 0.40%, the S&P 500 rose 0.52%, and the Nasdaq rose 0.58%.
The previous day, the US stock market Dow rose 0.59%, S&P 500 rose 0.63%, and Nasdaq rose 0.39%. The U.S. stock market closed on the rise as defense stocks soared, including a 9% surge in the stock price of Lockheed Martin, a leading U.S. defense company.
This is because the possibility of the Federal Reserve raising interest rates has decreased as uncertainty in the world economy increases due to the war in the Middle East.
◇ Governor Bostic “There is no need for further interest rate increases due to the war in the Middle East.”
: Atlanta Fed President Raphael Bostic said on this day, “There is no longer a need to raise interest rates due to the war in the Middle East.” He said this in a speech at the American Bankers Association.
He said, “Uncertainty in the world economy has increased due to the war in the Middle East,” and “I don’t think there is a need for further interest rate increases.”
He added, “If future economic indicators turn out differently than we expect, we may have to raise interest rates, but that is not very likely and it is not our expectation.”
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Bond yields highest in 16 years
: In addition, the recent surge in bond yields also lowers the possibility of an interest rate hike by the Federal Reserve.
The 10-year yield, the benchmark for U.S. Treasury bonds, exceeded 4.8% last week, breaking the 16-year high since the financial crisis occurred in 2007.
Since market interest rates are already high, there is a growing criticism that there is no need for the Federal Reserve to raise interest rates.
◇ Governor Daley “Market interest rates have risen a lot, so we may not raise the base interest rate.”
: San Francisco Fed President Mary Daley, who is classified as an ‘inflation hawk,’ went so far as to say, “The Fed may not raise interest rates due to a surge in bond yields, which is the market interest rate.”
He attended the New York Economic Club event on the 5th and said, “If bond yields remain at the current level, there will be no need for the Federal Reserve to raise interest rates again.”
He explained, “Since September, bond yields have risen by 0.36 percentage points,” and “this will have the effect of the Federal Reserve raising interest rates once.”
He emphasized, “There is no need for the Federal Reserve to rush into any decisions at a time when the labor market is showing signs of cooling, inflationary pressures are easing, and Treasury yields have soared.”
Federal Reserve Board member Michelle Bowman, who is classified as the best ‘inflation hawk’, recently said, “Future monetary policy is not on a predetermined course” and “could change depending on the situation,” suggesting the possibility of stopping interest rate hikes.
The actual market is also reacting this way.
◇ The probability of an interest rate hike at the FOMC in November is only 8%.
: On this day, the federal funds rate (US benchmark interest rate) futures traded on the Chicago Mercantile Exchange (CME) reflected an 8% probability that the Federal Reserve will raise interest rates at the Open Market Committee (FOMC) in November. This is a sharp drop from 13% the previous day, 28% last week, and 43% last month.
The probability of interest rates being frozen is 92%, so it appears that the November interest rate hike has actually gone by the wayside.
Due to the surge in Treasury yields and the war in the Middle East, there is a growing possibility that the U.S. Federal Reserve will temporarily suspend, but not end, its interest rate hike campaign.
Meanwhile, the Federal Reserve has raised interest rates a total of 11 times since March 2022, raising the US base interest rate to the range of 5.25% to 5.50%. This is the highest in 22 years.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.