Early this morning, the Federal Reserve issued a heavy signal.
The latest meeting minutes released by the Federal Reserve have become the focus of market attention. On the early morning of October 10th Beijing time, the Federal Reserve released the minutes of its September interest rate meeting, which showed that there were significant differences within the Fed regarding a significant 50 basis point rate cut in September. The meeting minutes show that the Federal Reserve's monetary decisions have no predetermined path and depend on the balance of economic development, economic outlook impact, employment, and inflation risks.
Analysts point out that the latest minutes mainly show the divergence among Fed officials on the 50 basis point rate cut in September, but they have not disrupted the overall tone of the rate cut cycle, which may be good news for the stock market.
Affected by this, all three major US stock indices closed higher, with the S&P 500 index rising 0.71%, setting a new historical high once again; The Dow Jones Industrial Average rose over 1%, while the Nasdaq rose 0.6%. Chinese concept stocks also rebounded significantly during the trading session, with the Nasdaq China Golden Dragon Index falling more than 3.7% at the beginning of the session. As of the close, the decline narrowed to 1.29%. FTSE China A50 Index futures closed up 2.87% at night.
The Federal Reserve releases a heavyweight announcement
On the early morning of October 10th Beijing time, the Federal Reserve released the minutes of its latest interest rate meeting, which detailed the reasons why Fed officials decided to significantly cut interest rates by 50 basis points in September, as well as the latest assessment of the future path of monetary policy.
The minutes of the meeting showed that the "vast majority" of attending officials agreed to a 50 basis point rate cut, but there were also "some participants" who stated that a 25 basis point rate cut would be a better choice, and even some officials may have voted in favor of a 25 basis point rate cut.
Officials who support a larger rate cut believe that choosing 50 basis points for the first rate cut can align with the latest inflation and labor market data, thereby helping to maintain strong employment and the economy while continuing to push for progress in reducing inflation.
Federal Reserve officials who believe that a 25 basis point rate cut is more reasonable emphasize that adopting a model of unexpected rate cuts is inconsistent with the Fed's intention to gradually lower policy rates; At the same time, the economic data itself only supports interest rate cuts, but does not point to excessive interest rate cuts.
Some attending officials believe that with stable economic growth and low employment rates, a 25 basis point interest rate cut would be more in line with the path of gradually normalizing monetary policy, and would also give the Federal Reserve more time to evaluate economic progress. These officials added that steadily advancing the 25 basis point interest rate cut also shows more signs of a predictable path for monetary policy.
At the same time, there are different views within the Federal Reserve on the degree of tightening, with some officials emphasizing the need for external communication. Even if interest rates are cut, the balance sheet may continue to shrink for a period of time.
This means that there is significant disagreement within the Federal Reserve regarding the 50 basis point rate cut in September.
Regarding the highly anticipated future interest rate cut path in the market, meeting minutes indicate that if inflation continues to decline towards the Federal Reserve's 2% policy target and employment maintains its recent expansion trend, it may be appropriate to adopt a more neutral stance over time.
The meeting minutes show that the Federal Reserve's monetary decisions have no predetermined path and depend on the balance of economic development, economic outlook impact, employment, and inflation risks.
When discussing the outlook for monetary policy, Federal Reserve decision-makers emphasized the need to let the outside world know that a 50 basis point rate cut in September should not be seen as the Fed's expectation of a bleak economic outlook. They believe that decisions depend on the development and changes in the economic situation, the impact on the economic outlook, and the balance of risks between employment and inflation.
In terms of economic prospects, Federal Reserve officials predicted at the September interest rate meeting that the US economy would remain robust, and their forecast for real GDP growth was roughly the same as the July meeting, but the unemployment rate was slightly higher than expected in July.
In terms of inflation prospects, the minutes show that "almost all participating officials have expressed increased confidence that inflation will continue to approach 2%".
A significant increase across the board
Overnight, the three major US stock indices collectively rose. As of the close, the S&P 500 index rose 0.71% to 5792.04 points, marking the 44th time this year that it has reached a historic high; The Nasdaq rose 0.6% and the Dow Jones Industrial Average rose 1.03%.
Driven by the overall rise in the US stock market, China's asset market also staged a counterattack during trading. The Nasdaq China Golden Dragon Index fell more than 3.7% at the beginning of trading, and as of the close, the decline narrowed to 1.29%. FTSE China A50 Index futures closed up 2.87% at 13694 points in late trading.
Analysts point out that the latest released minutes mainly show the divergence among Fed officials on the 50 basis point rate cut in September, but do not undermine the overall tone of the rate cut cycle.
Solita Marcelli, Chief Investment Officer of UBS Global Wealth Management in the Americas, interpreted that today's meeting minutes were quite "plain", which may actually be good news for stock investors.
The current market focus is on the US September CPI data released before the US stock market on Thursday. The market expects the year-on-year growth rate of CPI in September to be 2.3%, which will slow down for the sixth consecutive time. The core CPI annual rate, which is more closely monitored, will remain at 3.2%.
After the release of the September employment data in the United States, market expectations for a significant interest rate cut by the Federal Reserve continued to cool down. The market currently expects a 0% chance of a 50 basis point rate cut by the Fed in November, with a total of about 47 basis points cut by the end of 2024, far lower than the 75 basis points before the release of the non farm payroll report.
This has led to a continuous rise in US mortgage rates, with the largest increase since July 2023 last week. According to data from the Mortgage Bankers Association (MBA) on Wednesday, the contract interest rate for 30-year mortgage loans increased by 22 basis points to 6.36% in the week ending October 4th. At present, the interest rate is at its highest level since August.
At the same time, the yield of US 10-year treasury bond bonds has also rebounded to more than 4%, the highest level since early August.
Wall Street veteran and founder of Yardeni Research, Ed Yardeni, said that after the strong September employment report, the market consensus may shift towards no need to rush for further relaxation.
On October 8th local time, Dalio, founder of Bridgewater Fund, stated that he does not expect a "significant rate cut" in the future after Federal Reserve decision-makers cut the federal funds rate by half a percentage point. The market's expectation of a significant interest rate cut by the Federal Reserve seems to be too high. The Federal Reserve cut interest rates for the first time in four years last month, but the strong non farm payroll report in September provided policymakers with room to slow down their pace of action in the future.
Citi analysts say that although recent labor market data may have prompted some market participants to reconsider their expectations of a Fed rate cut, the likelihood of the Fed skipping the cut during its November meeting is low.
Castle Securities believes that the strong US economy and persistent inflation will push the Federal Reserve to cut interest rates only once again for the rest of this year, totaling 25 basis points.
New York Fed President Williams, known as the "third in command of the Federal Reserve," said on Tuesday that the US economy is ready for a "soft landing" and supports a 25 basis point rate cut in November; In 2025, the chairman of the St. Louis Federal Reserve and the chairman of the Central Committee of the National People's Congress, Musalem, also stated that the cost of too fast and too aggressive easing is higher than the cost of slow action, and gradual interest rate cuts would be appropriate.
In 2026, the Federal Reserve and Dallas Fed Chairman Logan stated on Wednesday that following a 50 basis point rate cut in September, the Fed should lower interest rates at a slower pace.