On October 28, the Federal Reserve voted 10 to 2 to keep the federal funds rate target range unchanged at 3.75% to 4.00%, in line with market expectations, with two members supporting a further 25 basis point hike. The statement upgraded its assessment of economic activity to "strong" and reiterated that inflation remains elevated, noting that the committee will rely on incoming data to determine the appropriate policy stance and offering no clear forward guidance. Fed Chair Warsh also mentioned plans to reform the frequency of FOMC meetings, while market pricing suggests the probability of another rate hike in December remains relatively high.
Far East Commentary: This pause in hiking reflects, on one hand, the Fed's desire to wait for more signals on inflation, employment, and fiscal financing in order to assess the lagged effects of earlier policy; on the other hand, rising Treasury supply, higher term premiums, and AI-related capital expenditure that boosts financing demand have pushed long-end yields and credit costs higher in a passive manner, tightening financial conditions somewhat and thereby sharing part of the tightening burden. On the fundamentals side, the initial estimate for U.S. third-quarter GDP showed annualized quarter-on-quarter growth of 3.4%, significantly above the 2.2% pace in the second quarter, confirming the economy's resilience. Whether further hikes are added later will depend on whether core inflation can continue to decline and on how geopolitical developments disturb energy prices. Regarding the FOMC mechanism reform, the total number of meetings each year will remain unchanged at eight, but starting in 2027 one meeting will be dedicated to discussing monetary policy strategy without voting on rates, increasing to two such meetings in 2028. Over the long term, this may reshape the market's pricing logic for policy windows, with the possibility of fewer rate adjustments but larger single moves. Looking ahead, market focus will shift toward U.S. inflation data and the Treasury's refinancing plans, and combined with the potential shock from geopolitical risks, volatility in U.S. Treasuries is likely to persist, while the overseas high-rate environment may continue to constrain global bond markets and cross-border capital flows.
Eaton Vance Municipal Bond Fund (EIM) remains among the vehicles sensitive to shifts in rate expectations, as municipal bond valuations often track changes in the broader interest rate outlook.
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