10-Year US Treasury Yield Rises as Fed Keeps Interest Rates
10-Year US Treasury yield inches higher on Wednesday as Federal Reserve keeps interest rates unchanged at a Wednesday meeting between zero and 0.25%. Also, the stock market rebounds while the 10-year US Treasury yield was 2.1 basis points higher at 1.46%.
The Federal Reserve said Wednesday it will begin reducing its asset purchases by $30 billion per month starting in January, up from the $15 billion pace, in large part because of much faster inflation growth as well as continued recovery in the labour market.
The central bank’s Federal Open Market Committee said after its two-day meeting that it would cut $20 billion in monthly Treasury securities purchases and $10 billion in agency mortgage-backed securities.
Also, Bitcoin price jumped about 5% on the news, reaching a new intraday high above the $49,000, data from Coinmarketcap.com shows.
The Fed will maintain near-zero rates until full employment is achieved, according to a statement issued by its officials. During a press conference, Chair Jerome Powell said that it was unclear how much longer labour market shortages would last:
The economy has been making rapid progress toward maximum employment. How long the labour shortages will persist is unclear, particularly if additional waves of the virus occur.
The median forecast of the policymakers shows three rate hikes in 2022. Three additional hikes are expected to occur in 2023. The central bank has also doubled the pace of bond purchase tapering by $30 billion per month.
Market observers were looking for signals of the Fed’s determination to decisively withdraw its economic support amid persistent inflation concerns.
The central bank is on track to phase out the massive stimulus program, which many belief has propelled the prices of assets like Bitcoin, in March. Powell claims that the Fed won’t raise rates until the taper is over: We’re basically two meetings away, now, from finishing the taper.
Notably, the Fed no longer uses the controversial word “transitory,” which has been criticized by former Twitter CEO Jack Dorsey and other pundits, in order to describe inflation.
Last week, the consumer price index showed price rising at the fastest pace since 1982. Powell says that this level of inflation is not consistent with price stability.
US stocks bounced back from a two-day slump Wednesday following the Federal Reserve’s decision to double the pace of its asset purchase tapering next month.
The S&P 500 rose 1.6% to 4,709.85, the Nasdaq Composite was up 2.2% to 15,565.58 and the Dow Jones Industrial Average advanced 1.1% to 35,927.43. Technology and health stocks were the top gainers, with all stocks except energy in the green.
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