Federal Reserve Freezes Rates for the Fifth Consecutive Time, Chairman Says Market Has Already Tightened
The Federal Reserve has decided to freeze interest rates for the fifth consecutive time. Chairman Kevin Walsh stated at a press conference that the market has raised treasury yields on its own over the past 42 days, effectively completing the tightening for the central bank.
When asked by reporters why there was no rate hike despite high inflation, Walsh emphasized that the Federal Reserve has stepped back from intervention, allowing the market to make its own judgments. The Dow Jones fell 840 points after the press conference.
The event-driven bond market tightening has replaced direct rate hikes by the central bank, with funds flowing from risk assets to treasury sell-offs. The Federal Reserve benefits from the indirect tightening effect, putting pressure on the stock market and assets sensitive to financing costs.
Source: Public Information
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Against the backdrop of still high inflation, the Federal Reserve chose to remain inactive and cited rising bond market yields as an "invisible rate hike," reflecting the new chairman's preference for allowing market forces to dictate financial conditions rather than actively adjusting policy rates.
In terms of capital pathways, the central bank has partially delegated its tightening function to the bond market, motivated by the desire to avoid excessive policy intervention while achieving inflation control goals. Resources are shifting from interest rate decisions to observing and communicating about long-term yields.
Similar to past narratives of "the market has priced in tightening," we are currently in a phase where monetary policy is transitioning from active guidance to passive adaptation to the market.
This essentially represents a regulatory change: the central bank is shifting from direct rate hikes to recognizing market-driven tightening, as the bond market sell-off has already achieved similar effects, thereby restructuring the relationship between policy rates and actual financing costs.
ABAB News · Law of Cognition
Market sell-offs often take effect faster than central bank rate hikes.
Freezing rates does not equate to easing expectations.
Invisible rate hikes are harsher on risk assets.