The minutes of the Federal Reserve meeting release an “eagle”! Most officials support another rate hike during the year, and the dollar continues to rise

The Zhitong Finance App learned that on Wednesday, the minutes of the latest meeting released by the Federal Reserve showed that all 19 officials supported the September rate hike, and most participants believed that interest rates might need to be raised further before the end of the year. Although market bets on an immediate interest rate hike in October have clearly cooled down, the Federal Reserve's hawkish stance still supports the US dollar. Meanwhile, concerns raised by France's fiscal situation put pressure on the European bond market again. The euro fell sharply on Wednesday and gradually approached the 17-month low hit this Monday.

At the September 15-16 meeting, the Federal Reserve raised the federal funds rate target range by 25 basis points to 3.75%-4%. This is the first rate hike since July 2023. However, there are some differences among officials as to the reasons for raising interest rates. Some participants believe that raising interest rates will help prevent energy and other price shocks from further boosting inflation; more hawkish officials believe that as demand in the US economy remains strong, higher interest rates have become a necessary measure to prevent demand-driven inflationary pressure.

The minutes of the meeting showed that most participants believed that it might be appropriate to raise the federal funds rate target range again before the end of this year. A number of officials also said that the potential growth momentum of the US economy seems to have increased. At the same time, despite the recent marked rise in long-term US bond yields, many officials believe that the overall financial environment still supports economic growth. Since this year, US stocks have risen markedly, and credit spreads on corporate bonds have remained low.

Federal Reserve Chairman Walsh said at a press conference after the September meeting that the interest rate hike is aimed at withdrawing some policy easing because inflation remains high. However, Federal Reserve Vice Chairman Jefferson and New York Federal Reserve Chairman Williams both sent a more cautious signal last week, believing that the Fed will have time to further observe economic data before deciding whether to continue raising interest rates.

This has significantly lowered the market's bets on consecutive interest rate hikes in October. According to CME FedWatch data, the market currently expects the probability that the Fed will raise interest rates by at least 25 basis points at this month's meeting is about 19.4%, down from about 38% a week ago; however, the market still expects the probability of raising interest rates in December to reach 83%, indicating that investors still think the possibility of further tightening monetary policy during the year is high.

After the minutes of the meeting were published, the US dollar maintained its upward trend. The US dollar index, which measures the dollar's performance against a basket of major currencies, rose 0.32% to 102.24. The recent high energy prices have also provided some support to the US dollar. Juan Perez, senior trading director at Monex USA, said that in an environment where access to energy resources is difficult, the dollar is usually favored for capital.

At the same time, financial risk in the European market has become another main line in the foreign exchange market. France's financial situation continues to raise investors' concerns, driving higher yields on French and Italian treasury bonds. Among them, bonds from countries with heavy debt burdens have been sold off more clearly, while traditional safe-haven assets such as Germany have shown relatively stable performance.

French 10-year treasury yields rose 11.9 basis points to 4.8696% on Wednesday, which is expected to be the biggest one-day increase in two weeks; German 10-year treasury yields remained flat at 3.4805% during the same period. This means that the financing cost gap between France and Germany has widened further, reflecting investors' demand for higher risk compensation by holding French treasury bonds. French bonds have continued to be under pressure recently. As the 2027 general election approaches, it is still difficult for the French political community to reach an effective consensus on reducing the budget deficit, while expectations of interest rate hikes by global central banks and concerns about the government's financial situation have further boosted bond yields. Spain's announcement of an early general election has also heightened market concerns about European political uncertainty.

Bank of France Governor Emmanuel Moulin said that as financing costs rise, the French economic situation is indeed serious, but it has not yet reached the level where ECB assistance is needed. French Finance Minister Roland Lescure said that France will adopt a “strategic” approach when issuing new bonds in the future.

Shriya Samarth, head of interest rates in Europe, the Middle East and Africa at StoneX, believes that there is still room for further decline in French treasury bonds, but this does not necessarily mean that the market will fall into panic. She pointed out that France has not yet released a signal that it is close to a debt default, so the situation has not reached the serious level of severity faced by Greece during the European debt crisis.

Heated fiscal risks in France combined with the strengthening of the US dollar put obvious pressure on the euro. EUR/USD fell 0.53% to $1,198 on Wednesday, gradually approaching the 17-month low set on Monday. GBP/USD fell 0.42% to $1.3216, but GBP/EUR once rose to the highest level since June 2025.

On the yen side, the dollar fell slightly against the yen by 0.09% to 157.95. Bank of Japan's newly appointed board member Ayano Sato said that she supports a phased increase in interest rates, which supports the yen to a certain extent.