All eyes have been on the Federal Reserve for the last several months as a series of rate hikes, one after the other, have emerged to play hob with the American economy, all in the name of fighting the still-quite-rampant inflation. With the second to last meeting of 2023 now in the books, the current course of action will remain the course of action as the Fed left rates alone.
This is the second Fed meeting in a row where the Fed agreed to hold rates static, though there were already plenty of onlookers expecting that no further tightening would take place going into the final weeks of 2023. As for the motive behind it, Fed Chairman Jerome Powell noted that the progress made on inflation still has quite some ways to go—as just about anyone who’s shopped for anything in the last several weeks will note—but the recent rise spotted in bond yields might also have something to do with the tightening financial conditions overall. Thus, any hike in the Fed funds rate might have been a bridge too far. With today’s decision, the Fed funds rate remains at 5.25 – 5.5%, and further hikes may be on the way.
There is only one meeting left, scheduled for December 12-13, and it will be associated with a Summary of Economic Projections report. Any further raises will hit then, and a final raise to the year might not be out of line. By December 12, the die will be largely cast in terms of holiday shopping, except for a few stragglers. Any hikes after that, therefore, might have less impact on a major retail event. Further, with Powell himself revealing that household budgets, along with small businesses, may be “…stronger than originally expected,” that may take the teeth out of future hikes. But given that a lot of that spending is likely due to soaring inflation as opposed to vast consumption, more hikes may be in line to actually bring down inflation and discover truer levels of spending.
Is the Vanguard Total Bond Market ETF a Good Buy Right Now?
Turning to Wall Street, a look at the last five days of trading for the Vanguard Total Bond Market ETF (NASDAQ:BND) suggests a connection to Powell’s remarks. While it struggled to show much in the way of gains in the last five days, this morning’s trading sent it on an upward rise. The rise didn’t last the entire day, but got a second wind after seeing slight losses in the afternoon’s trading session.
