Fed's Kashkari sees another rate hike

Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects the US central bank will need to raise interest rates one more time.

By Ahmed Azzam | @3zzamous | 26 September 2023

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  • US 10-year Treasury yields breach 4.5%, reaching levels not seen since 2007.

  • Federal Reserve's Neel Kashkari signals the potential for another rate hike this year.

  • Bipartisan Senate negotiators near a deal on a short-term spending measure to avert a government shutdown after October 1st.

Stock markets across Asia experienced a notable downturn today as Treasury yields and the US dollar surged, indicating that investors are still in the process of recalibrating their expectations for interest rates. The underlying cause of this financial tremor stems from the growing conviction that major central banks will need to maintain higher interest rates for an extended period to curb mounting inflationary pressures.

The yield on the benchmark US 10-year Treasury note made a significant leap, surging above 4.5%, a level not witnessed since 2007. Meanwhile, Germany's 10-year bund yield climbed towards 2.8%, marking its highest point since July 2011. These developments have raised concerns among investors about the potential impact on borrowing costs and the broader global economic landscape.

Federal Reserve's Kashkari signals further rate hike

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, weighed in on the ongoing debate, asserting that the Federal Reserve might be compelled to raise rates once more this year and maintain a tighter monetary policy for an extended period if the US economy exhibits greater strength than anticipated. Kashkari's remarks align with projections from 12 policymakers, including himself, who recently signaled another rate hike during projections released following the central bank's most recent meeting.

Senate nears deal on short-term spending measure

On the domestic front, negotiations in the Senate between members of the Republican and Democratic parties are edging closer to a consensus on a short-term spending measure aimed at preventing a government shutdown beyond October 1st. According to an informed source, the proposed legislation would extend funding for a duration ranging between four to six weeks, a shorter timeframe than initially sought by Democrats. Moody's, one of the leading credit rating agencies, cautioned that a US government shutdown could have adverse implications for the nation's credit rating, highlighting the economic significance of reaching a timely agreement.

Market watches key economic data releases

As market participants anxiously await the release of today's economic data, several key indicators are poised to influence sentiment. Among these, consumer confidence figures are expected to dip from 106.1 to 105.5. Additionally, new home sales may see a decline, dropping from 714,000 to 699,000. Against this backdrop, market observers continue to scrutinize comments from Federal Reserve members for insights into the central bank's forthcoming interest rate decisions. Notably, Federal Reserve Governor Michelle Bowman is scheduled to address the market today, adding another layer of anticipation to the ongoing interest rate discourse.