Fed holds rates at 3.75% to 4% as Treasury spread widens to 34.1 basis points

The US Federal Reserve held its policy rate at 3.75% to 4% on Wednesday, October 28, according to Moneycontrol. After Fed Chair Kevin Warsh's press conference, the US Treasury yield curve steepened and the spread between two-year and 10-year yields widened to as much as 34.1 basis points, Reuters reported. The Fed's description of economic growth also drew questions because recent payroll and GDP estimates had moderated.

Fed keeps its policy rate at 3.75% to 4%

Interest rates remained unchanged at 3.75% to 4% on Wednesday, October 28, Moneycontrol reported. Reuters said the decision had been expected.

Treasury spread widens to 34.1 basis points after Warsh's press conference

The gap between two-year and 10-year Treasury yields reached as much as 34.1 basis points after Kevin Warsh's press conference, according to Reuters.

Andrew Hollenhorst, chief US economist at Citigroup, said Warsh was overstating the breadth of strength in the economy and could leave the central bank more exposed to weaker-than-expected economic data.

Fed changes growth description from solid to strong

At its September meeting, the Federal Reserve had referred to a "solid" expansion; its latest assessment called US economic growth "strong", Reuters reported. The central bank cited investment and job gains that were keeping pace with workforce growth.

Brian Jacobsen, chief economic strategist at Annex Wealth Management, questioned the change by pointing to slower weekly ADP payroll gains since September. He also noted that the Atlanta Fed's GDPNow estimate had moderated from much stronger levels.

Inflation and borrowing concerns pressure longer-dated Treasuries

Treasury yields had climbed during the year to their highest levels in two decades, Reuters reported.

Yields rose across much of the curve, with pressure reported particularly for maturities of five to seven years and beyond, according to Reuters.

Anders Persson, chief investment officer for global fixed income at Nuveen, said stronger economic growth could add to inflation, fiscal-deficit and long-term fiscal-management concerns.

Reuters identified the additional compensation investors require to hold longer-term debt as the term premium.

Moneycontrol reported that investors were monitoring US inflation data, the dollar, Treasury yields and expectations for future Federal Reserve policy decisions.