Tension Ahead of Fed Minutes: Interest Rate Decisions in Focus

At the US stock exchanges on Wednesday, prices were mixed as traders eagerly awaited the minutes from the Federal Reserve's latest meeting. These documents are expected to provide key insights into the future interest rate path, which could shape the direction until the end of the year. Midweek, all three major indices were slightly down, while bond yields saw a slight increase. Investors were waiting for the release of the Fed minutes to learn more about the central bankers' assessments of the economy and interest rate cuts this year and beyond. Monetary policy has especially come into focus after a surprisingly strong jobs report in September raised doubts about whether the Fed would make another significant rate cut this year. Paul Donovan, chief economist at UBS Global Wealth Management, noted in a commentary that the minutes from the last Fed meeting were 'fascinating.' The underlying tone of the Fed minutes is unlikely to change expectations for further rate cuts — the Fed is still striving to keep pace with the slowing inflation in the US. However, the expected pace of rate cuts could be influenced by the minutes. Speculation arises from Pantheon Macroeconomics, which forecasts that the Fed will begin reducing rates in 25-basis-point increments rather than making another 50-point cut. Despite the current emphasis on economic strength by the FOMC, Pantheon believes that a soft labor market and activity data package in the fourth quarter and early next year could force the Fed to act quickly to avoid falling behind. Before the next interest rate decision is made, policymakers will analyze another jobs report and the consumer price index for September, which will be released Thursday morning. This inflation report is particularly crucial for the Fed, following the strong September employment report that shifted focus to the labor market. Currently, the markets are pricing in an 88% probability that the Fed will announce a quarter-point cut. On the other hand, the probabilities for another large rate move appear nearly eliminated at present, according to the CME FedWatch Tool. Amidst this market dynamic, the stock of Google's parent company Alphabet fell by 1% in early trading as the US Department of Justice indicated it might break up the tech giant.