The Federal Reserve meeting minutes were "hawkish", completely extinguishing hopes for another 50 basis point rate cut, while the bond market is even more pessimistic, already pricing in no rate cut in November.

Analysts believe that as long as the labor market remains stable, the Federal Reserve is unlikely to make another significant rate cut. The only factor that could prompt the Fed to cut rates further in a strong employment situation is mild CPI. Once inflation picks up, the market is concerned that the Fed may pause or stop the rate cuts in November.

The disagreement over the significant rate cut in September was larger than previously expected.

In September, the Federal Reserve initiated a loose cycle by cutting rates by 50 basis points, breaking away from its usual gradual approach to interest rate adjustments. Powell characterized this significant rate cut as a recalibration during the press conference, emphasizing that a 50 basis point rate cut would not be the norm.

The minutes released overnight revealed that the dissent over this decision three weeks ago was greater than anticipated, further lowering the expectations for rate cuts.

Although ultimately only one person voted against the 50 basis point rate cut, during the meeting discussions, "some" policymakers favored the more typical 25 basis point rate cut. "Several" individuals may have originally considered supporting a 25 basis point cut.

"The vast majority" supported a 50 basis point rate cut, according to the meeting minutes. Economist Derek Tang from Washington's LH Meyer/Monetary Policy Analytics described this as a "rare statement", emphasizing that they couldn't say "almost everyone supported it."

Due to the resilience of the US economy and labor market, some Federal Reserve officials recently stated that they are currently inclined to slow down.

St. Louis Fed President Alberto Mussalem said on Monday: "Considering the current economic situation, I believe the cost of premature excessive easing is greater than that of excessively late easing." Mussalem will become a voting member of the Federal Open Market Committee in 2025.

San Francisco Fed President and FOMC voter Mary Daly said on Wednesday: "Based on my economic forecasts, cutting rates twice or once this year does exceed what I thought was possible."

The bond market is more pessimistic about a rate cut in November.

On Wednesday, US bond yields rose across the board as traders scaled back bets on further Fed rate cuts ahead of Thursday's inflation data release.

US Treasury yields generally rose by 5-6 basis points, with 2-year and 10-year yields surpassing 4%, while 10-year and 30-year Treasury yields rose to their highest levels since the end of July.

Bryce Doty, fund manager at Sit Investment Associates, stated that the market is concerned that the Fed may pause rate hikes at the next meeting, "The only factor that could lead the Fed to continue cutting rates is moderate CPI if the employment situation remains strong."

Following strong nonfarm payroll data released last Friday, bond traders have abandoned bets on a 50-basis-point rate cut in November. Swap contract data indicates that the probability of a 25-basis-point rate cut next month is not 100%, currently around 80%, with a close to 20% chance of no rate cut.

Currently, the market still expects a quarter-point rate cut by the end of the year. However, if the CPI data for September released on Thursday fails to show cooling inflation, it may weaken the possibility of a rate cut of more than 25 basis points this year.

Consensus expectations show that the CPI for September released on Thursday is expected to increase slightly by 0.1% month-on-month, the lowest increase in nearly three months, and a year-on-year growth of 2.3%, the sixth consecutive month of slowing down and the mildest growth since early 2021.

Although the market's inflation expectations are relatively optimistic, some analysts warn that investors should remain cautious as inflation risks have not completely disappeared. The possibility of soaring oil prices due to Middle East conflicts and the rise in wage growth in non-farm data both indicate that the "inflation is not dead" in the USA.

Editor/ping