Due to concerns about the prolonged high interest rates of the US central bank, the Federal Reserve (Fed), the interest rate on US 10-year Treasury bonds exceeded 4.9% for the first time in 16 years since 2007 on the 18th (local time). This is interpreted as a result of the recent strong consumption in the United States being interpreted as an upward pressure on inflation.
The 10-year maturity government bond, which exceeded 4.95% during the day and was close to 5%, is the market ‘benchmark’ interest rate and directly affects the market loan interest rate. This means that financing costs for companies and households are increasing. In fact, on this day, the 30-year home equity loan (mortgage) interest rate hit the 8% range for the first time in 23 years since 2000.
The rise in government bond interest rates is largely due to strong U.S. consumption. Retail sales for September this year, announced the day before, rose 0.7% compared to the previous month, significantly exceeding experts’ forecasts (0.2%). This adds weight to the forecast that it will be difficult for prices to fall to the Fed’s target of 2%. Jim Reed, an analyst at global investment bank Deutsche Bank, analyzed, “The heightened possibility of further interest rate hikes by the Federal Reserve is being reflected in investor sentiment.”
According to FedWatch of the Chicago Mercantile Exchange, interest rate futures investors see the possibility of interest rates being frozen at the Federal Open Market Committee (FOMC) regular meeting in November as about 95% as of midnight on the 19th. The problem is the December meeting. After the announcement of the consumption index, the possibility of a 0.25 percentage point increase increased from about 25% a week ago to about 40% today.
Federal Reserve officials said that we need to watch more indicators in the future amid geopolitical uncertainties such as the US-China conflict and war in the Middle East, but also hinted at a ‘prolongation of high interest rates.’ John Williams, President of the Federal Reserve Bank of New York, said in a conversation at Queens College in New York that day, “We will stick to the 2% (inflation) target,” and “We must maintain this restrictive policy stance for the time being.” Philadelphia Fed President Patrick Harker said in an interview with the Wall Street Journal (WSJ), “Now is the time to sit down for a moment. “I am worried about companies that cannot survive in high interest rates,” he said, pointing out the need for the Federal Reserve to freeze interest rates.
The International Monetary Fund (IMF) pointed out in its Asia regional report that day, “Asian central banks must maintain a tightening stance until the inflation rate falls firmly within the target range.”
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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.