Netanyahu to Convene Cabinet as Gaza Hostage Deal Gets Closer

The manager turned first to a review of developments in financial markets over the intermeeting period. Financial conditions continued to tighten, driven by higher yields on Treasury securities as well as by lower equity prices and a stronger dollar, which themselves partly reflected higher interest rates. Because earnings expectations had held up well in recent months, the effect of higher interest rates on equity prices likely took place largely through valuations. The rise since July in yields on longer-dated nominal Treasury securities was mostly attributable to increases in real yields. There were small increases in inflation compensation, but the levels of spot and forward rates were within historical ranges. The manager also noted that survey measures pointed to generally stable inflation expectations, especially at longer horizons, and that inflation expectations remained well anchored. Staff analysis and responses from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants suggested that the bulk of the increase since July in the 10-year nominal Treasury yield could be attributed to a higher term premium, though higher policy expectations at longer horizons could also have played a role. The manager also noted that liquidity conditions in the Treasury market had not changed materially since July, suggesting that Treasury market liquidity had not been an important driver of the increase in yields. The manager turned next to expectations for monetary policy. Both market pricing and responses to the Desk's surveys implied that market participants expected that the federal funds rate was at or near its peak and would be held there at least until the June 2024 FOMC meeting; there was a roughly 30 percent probability of a 25 basis point increase at either the December or January FOMC meeting. Regarding balance sheet policy, the surveys showed that respondents had pushed out the date they expected balance sheet runoff to stop, perhaps partly in response to policymakers' communications that balance sheet runoff could continue even after the Committee begins to reduce the target range for the federal funds rate. The manager then turned to developments in money markets and Desk operations. Balance sheet runoff continued to proceed smoothly over the intermeeting period through reduced holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The continued repayment by the Federal Deposit Insurance Corporation of discount window loans extended to banks that were placed into receivership also contributed to reduced Federal Reserve assets. On the liabilities side of the balance sheet, usage of the overnight reverse repurchase agreement (ON RRP) facility declined further, as money market mutual funds continued to absorb new Treasury bill issuance and appeared to increase investment in the private market for repurchase agreements (repos) as well. Overall, the reduced usage of the ON RRP facility released more reserves than the reduction in Federal Reserve assets and the increase in the Treasury General Account absorbed. On tweet: FOMC MINUTES: PARTICIPANTS AGAIN AGREE MORE TIGHTENING MAY BE NEEDED IF AGGRESSIVE INFLATION PERSISTENT #FOMC #minutes #economy tweet: *FED MINUTES: ALL ON FOMC AGREE TO `PROCEED CAREFULLY' ON RATES *ALL ON FOMC SAW RATES REMAINING RESTRICTIVE FOR SOME TIME tweet: FED MINUTES: PARTICIPANTS NOTED THAT INFLATION HAD MODERATED OVER THE PAST YEAR BUT REMAINED UNACCEPTABLY HIGH AND WELL ABOVE 2% TARGET. tweet: FED MINUTES: PARTICIPANTS NOTED THERE HAD BEEN ONLY LIMITED PROGRESS IN BRINGING DOWN CORE SERVICES EX HOUSING INFLATION.

tweet: MORE FOMC MINUTES: PARTICIPANTS NOTED LATEST GDP REPORT WAS AT 'AN UNEXPECTEDLY STRONG PACE;' CONSUMER SPENDING 'SURPRISED TO THE UPSIDE' #FOMC #minutes #economy tweet: MORE FOMC MINUTES: PAYROLL GROWTH 'UNEXPECTEDLY STRONG' YET LABOR SUPPLY/DEMAND 'CONTINUING TO COME INTO BETTER BALANCE' ' #FOMC #minutes #economy