Monetary policy

Federal Reserve Chairman Jerome Powell suggested that a rate cut is coming, but cast doubt about whether the central bank would see enough data suggesting inflation is sufficiently tamed for interest rates to come down at their next meeting.

The president of the Federal Reserve Bank of Dallas and former manager of the central bank's open market account said a slower approach to balance sheet reduction may be warranted sooner rather than later.

Federal Reserve officials point to overnight reverse repurchase agreement activity as an indication of excess liquidity, which the central bank is working to reduce. But some analysts say that excess liquidity may be drying up faster than expected, with important implications for banks.

Benchmark two-year yields, those most closely tied to the outlook for US central-bank policy, rose as much as 14 basis points, the most in a day since June.

Often a harbinger of recessions, the fact that short-term yields are higher than long-term is not inherently bad, Federal Reserve Gov. Chris Waller said Tuesday, noting that in this case it could prove that market expectations are anchored.

Federal Reserve Chair Jerome Powell said he expects the final version of the Basel III endgame reforms to garner "broad support" after comments are received and addressed.

Treasuries fell, extending a selloff in government securities that has rapidly pushed up yields over the past month and threatens to undercut the economy by driving up borrowing costs.

Heinel contends that the Fed is done with its hiking cycle and that policy is restrictive enough. On this basis, she forecasts the U.S. economic growth slowing to 1.1% next year, with the inflation rate moderating to just below 3%.

After the salvo of central bank decisions last week, traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon.

Analysts look at whether the FOMC will bring the last rate hike in the cycle, whether recession is coming, and whether the Fed is making a policy mistake.