Atlanta Fed Chairman Raphael Bostic stated on Friday that he does not expect the Federal Reserve to lower the US benchmark interest rate until mid-2024. This is the first Federal Reserve official to reveal the timeline for a possible rate cut after the Fed released a hawkish chart that exceeded expectations in September. In an interview with the media, he said, "The Federal Reserve needs to be cautious, patient, and resolute in achieving its goal of reducing inflation to 2%." This statement echoes the tone of the Fed colleagues' remarks. According to public information, Bostek was one of the FOMC voting committees in 2024.
The hawkish dot chart released in September, which exceeded expectations, suggests that most Federal Reserve FOMC members expect another rate hike this year and have lowered their expectations for a rate cut in 2024. The previous dot matrix chart released in June showed that FOMC members generally expected interest rates to be 4.6% next year, while this dot matrix chart shows interest rate expectations as high as 5.1%, 50 basis points higher than June's expectations. In addition, the Federal Reserve's forecast for the federal funds rate in 2025 has also increased, with a median expectation of 3.9%, compared to the previous 3.4%.
This means that Bostic, who has always tended towards a "dove" stance, is not in a hurry to relax the current high interest rate monetary policy, but supports the hawkish view widely supported by Federal Reserve officials of "maintaining high interest rates for a longer period of time". Bostek emphasized that after the Federal Reserve raised the benchmark interest rate to its highest point in more than a decade, he expects the growth rate of the US economy to slow down, but he does not believe that there will be a recession in the US economy. The economy still has a lot of momentum, "Bostick emphasized.
On Wednesday, New York Fed Chairman William, the third in command of the Federal Reserve and with permanent voting rights at the FOMC, reiterated the common view of most Fed officials that "interest rates need to remain high for a longer period of time" in order to bring inflation back to the Fed's anchor 2% target. In his latest speech, Williams stated that inflation has significantly decreased, but there is still a long way to go to reach the goal of reducing inflation to 2%. In his view, the Federal Reserve will not declare victory in the fight against inflation.
Prior to Bostek's latest views, Federal Reserve Chairman Powell had previously stated at the New York Economic Club that the Federal Reserve was acting cautiously and policymakers would make decisions on the extent of further policy adherence and the duration of policy restrictions based on upcoming overall data, changing prospects, and risk balance. The Federal Reserve Chairman added that tightening policies are putting downward pressure on economic activity and inflation. However, Powell stated that additional evidence of sustained above trend growth, or the absence of easing labor market tightening, may put further progress in inflation at risk and may guarantee further tightening of monetary policy.
Powell also pointed out that the current inflation rate is still too high, and a sustainable recovery to the Fed's anchored inflation target of 2% may require a period of below-trend growth, and labor market conditions may also need to further soften.
Like Federal Reserve Chairman Powell and other Federal Reserve members, Bostick also expressed the Fed's determination to keep inflation within its 2% target. The inflation rate has already dropped a lot. I think this trend will continue, "Bostock said.
The sound of the Federal Reserve's hawk broke through the sky, and the "anchor of global asset pricing" briefly hit the 5% major level
The current global financial markets are increasingly concerned about the carrying capacity of the bond market under the historic large debt issuance scale of the US government. At the same time, due to the resurgence of US inflation and optimistic employment data, investors' expectations of the "higher for longer" collectively thrown by Federal Reserve officials are becoming increasingly firm, which is also continuing to affect the pricing benchmark of the US bond market.
Therefore, these significant factors have put pressure on the prices of long-term US bonds (with a reverse trend between changes in US bond prices and yields), continuously pushing up the yields of US bonds with various maturities, especially those of 10 years and above.
The 10-year US Treasury yield, known as the "anchor of global asset pricing," is often regarded as a key benchmark for the "risk-free yield" of the global market. According to the quotation of institutional statistics, the yield of 10-year US treasury bond bonds climbed to a 16 year high of 5.001% in the US stock market on Thursday, and finally rose about 9 basis points to 4.986% in the late afternoon.
In addition, the "term premium indicator" of 10-year US treasury bond (an indicator that reflects the additional returns obtained by bond investors when holding long-term bonds, the higher the indicator, the higher the investor requires the securities held for a long time to provide higher yields) turned positive for the first time since June 2021. In the case of term premium, investors typically require long-term securities to provide additional high returns.
Ray Dalio, the world's top asset management master and the founder of Bridgewater Fund, said that as the Federal Reserve maintains high interest rates and inflation is difficult to reduce to the 2% target anchored by the Federal Reserve, the equilibrium level of the yield of the US 10-year treasury bond bonds seems to be around 5%.
The founder of the Bridgewater Fund stated that the important reason for his call is that he believes that sustainable inflation is around 3.5%, higher than the Federal Reserve's 2% target. Dalio also pointed out that the imbalance between supply and demand of US treasury bond bonds also led to higher bond yields. In this situation, the amount of debt we must sell is abnormal. However, the buyer's power is unwilling to purchase these debts for various reasons, so they demand higher yields