Fed Chair Warsh: "Rate-setting meetings to fall to seven next year"... U.S. 2-year Treasury yields and dollar fall

Markets view fewer rate-setting meetings as dovish
Two-year Treasury yield gives back gains after Warsh's remarks
December rate hike outlook unchanged

The U.S. Federal Reserve (Fed) will gradually reduce the number of meetings at which it sets interest rates starting next year. Markets interpreted the move as a dovish signal, sending short-term U.S. Treasury yields and the dollar lower.

Fed Chair Kevin Warsh said at a press conference after the October FOMC meeting on October 28 local time that, starting in 2027, some meetings would be devoted solely to discussing monetary policy strategy, without decisions on interest rates or the release of policy statements.

Kevin Warsh, nominee for Fed chair. Yonhap News Agency

As a result, the number of meetings that include a vote on interest rates and the release of a policy statement will fall from eight to seven a year. In 2028, the Fed plans to increase the number of strategy meetings to two, reducing the number of meetings at which actual interest rate decisions are made to six. The Fed intends to maintain a total of eight FOMC meetings a year, including strategy meetings.

At the FOMC meeting in July, Warsh first proposed reducing the number of meetings at which interest rates are decided from eight to six a year. The aim is to gather more economic data and information and use them to inform monetary policy decisions.

Markets interpreted the reduction in opportunities to change interest rates as a dovish signal. Bloomberg reported that the yield on two-year U.S. Treasuries, which is sensitive to the outlook for Fed monetary policy, fell by as much as 4 basis points (1 bp = 0.01 percentage point) after Warsh's remarks, reaching 4.70% annually.

The yield on two-year U.S. Treasuries rose by as much as 5 basis points immediately after the Fed held rates steady at its October FOMC meeting. However, after Warsh announced the reduction in the number of rate-setting meetings, the yield erased all of its gains and turned lower. The dollar also gave up its earlier gains and weakened. Long-term Treasury yields, by contrast, continued to rise.

"The market started moving when Warsh mentioned changing the meeting schedule," said Steve Englander, global head of G10 FX research at Standard Chartered Bank. "The market interpreted this as a dovish move."

However, the outlook for a rate hike in December remained unchanged. Interest rate futures markets priced in a greater than 90% probability that the benchmark rate would be raised by 0.25 percentage point in December.

Kay Haigh, global head of the Liquidity Solutions business and chief investment officer (CIO) at Goldman Sachs Asset Management, said, "The acceleration in inflation seen in recent data shows that risks remain." She added, "We expect the Fed to resume raising rates in December." She also said, "If energy prices rise again or additional strong economic data emerge, monetary tightening could be more pronounced next year."

This content was produced with the assistance of AI translation services.