The US Federal Reserve held its target range for interest rates at 3.75% to 4% in a 10-2 vote on Wednesday. The two dissenters, Governor Lisa Cook and Cleveland Fed President Beth Hammack, both wanted a quarter-point rise. The decision is the benchmark against which many other central banks’ moves this week should be read.
The Federal Open Market Committee (FOMC) stressed in its statement that “Inflation remains elevated”. The statement tells fixed income investors that a pause is not the same as the end of tightening.
For insurer investment teams, the reason this matters is specific. Each rise in US yields cuts the market value of the long-duration bonds that insurers hold against their liabilities, so a Fed that holds but leans towards a hike keeps pressure on portfolios even without a move.
The balance of dissents also suggests the next surprise is more likely to be a hike than a cut.
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