Federal Reserve meeting minutes: Participants presented multiple views in support of raising interest rates

⑴ The minutes of the European Central Bank’s September meeting, disclosed on Thursday, indicate that officials expect the final level of inflation in the eurozone may surpass previous forecasts. In a highly uncertain environment, it is crucial not to provide advance guidance on the interest rate path. ⑵ The minutes explicitly state that the core principle is not to signal any future policy actions and to maintain flexibility across all policy options. ⑶ During this meeting, the European Central Bank implemented a 25-basis point rate hike, with all members unanimously recognizing that there are upside risks to inflation. ⑷ Due to multiple risks and diverse scenarios regarding the inflation outlook, the central bank merely confirmed the current risk situation and did not pre-commit to any future interest rate direction.

(1) Brent crude oil rose by 4.8% to $104.2 per barrel, with heightened concerns over inflation due to increased supply disruptions in the Middle East. The market has adjusted expectations for continued rate hikes by the European Central Bank, leading to a collective rise in Eurozone government bond yields and putting pressure on bonds from high-debt countries. (2) The yield on French 10-year government bonds increased by 9 basis points to 4.94%, nearing the 24-year high set previously. The yield spread between French and German 10-year government bonds widened by 4 basis points to 141 basis points, as the market grows concerned about French debt, fiscal deficits, and political uncertainties arising from the 2027 general election. (3) The benchmark German 10-year government bond yield for the Eurozone rose by 5 basis points to 3.52%, outperforming other Eurozone bonds and underscoring its safe-haven status. (4) The yield on German 2-year government bonds simultaneously rose by 5 basis points to 3.07%, with short-term rates clearly influenced by expectations of further European Central Bank rate hikes. (5) François Villeroy de Galhau, head of the Bank of France, stated that the current geopolitical shocks driving inflation are gradually evolving into financial shocks. He also noted that France, at this stage, does not require special support from the European Central Bank. (6) The yield on the US 10-year Treasury note rose by 7 basis points to 5.33%, maintaining high global financing costs and exerting spillover pressure on the European bond market.

(1) European Central Bank Governing Council member Stournaras stated at the Istanbul Financial Conference that inflation expectations in the Eurozone are anchored near the 2% target. Even though actual inflation is between the baseline and adverse scenarios, a moderate monetary policy response remains appropriate. (2) He noted that current data shows almost no evidence of second-round inflation effects, meaning there are no significant signs of price increases being transmitted to wages or the prices of other goods and services, which is a positive signal. (3) Stournaras emphasized the need to take this factor into account when formulating monetary policy and maintain a moderate policy stance.

(1) The oil tanker attack in the Strait of Hormuz has intensified concerns over crude oil supply, pushing Brent crude up by $3.7 in a single day to $103.6 per barrel. Inflation expectations have risen again, leading to increases in global government bond yields and a general decline in equity markets. (2) European natural gas prices have risen to a two-week high, with Dutch benchmark gas contracts up 2.8% to €79.6 per megawatt-hour. Maersk has announced that starting next Monday, emergency fuel surcharges for imports and exports will be raised to 19%. (3) The yield on long-term UK government bonds has broken above 6% again, with the 30-year gilt yield reaching 6.004% and the 10-year gilt rising to 5.46%, putting pressure on the UK Chancellor ahead of the upcoming budget. (4) The eurozone bond market is also weakening, with French 10-year government bond yields rising to 4.91% and the France-Germany bond yield spread widening. The STOXX Europe 600 Index fell by 0.9%, hitting a nearly four-month low.