Federal Reserve Meeting Minutes Unveil Divergent Views on Interest Rates

Economic

Summary:

The recently released Federal Reserve meeting minutes indicate a nuanced outlook among members, with discussions on the possibility of interest rate hikes despite previous signals of a completed tightening phase. Members foresee a slowing U.S. economic growth and anticipate ongoing labour market rebalancing through 2024. While uncertainty surrounds the timing of rate cuts, markets are attentive to potential adjustments in 2024 despite cautious guidance from Federal Reserve officials.

The recent release of the minutes from the latest Federal Reserve meeting has captured the attention of markets, particularly following remarks made by Federal Reserve member Barquin in the morning. Barquin hinted at the possibility of another interest rate hike, contrary to earlier signals from Jerome Powell, the Federal Reserve Chairman, suggesting the tightening phase had passed.

The minutes revealed that interest rates, from the perspective of Federal Reserve members, are barely near their peak. The majority of members agreed that the growth of the U.S. economy is expected to slow down in the future, with labour market rebalancing continuing throughout 2024.

Members noted diminishing risks in the labour market and inflation rebound, emphasizing that maintaining elevated interest rates for some time would help reduce inflation and stabilize spending.

In December, Federal Reserve officials suggested a likely interest rate cut in 2024 but provided limited information on when this might occur, according to the meeting minutes. The Federal Open Market Committee, responsible for setting the interest rate, agreed to keep the baseline rate between 5.25% and 5.5%. Members indicated an expectation of three quarter-point rate cuts by the end of 2024.

The meeting summary highlighted a high degree of uncertainty about how and when these cuts would take place.

Officials acknowledged progress in combating inflation, noting that supply chain-related factors contributing to the mid-2022 peak in inflation had subsided. They also pointed to improvements in achieving a better balance in the labour market, though this remains a work in progress.

The dot plot of individual member expectations, revealed after the previous meeting, indicated anticipated reductions over the next three years to bring the overnight lending rate close to the long-term target range of 2%.

The minutes stated, "Participants noted a high degree of uncertainty about the path of policy. Some participants indicated that it might be necessary to maintain the federal funds rate at a high level if inflation does not respond sufficiently, while others pointed to the possibility of further increases depending on evolving conditions."

Despite cautious guidance from Federal Reserve officials, markets anticipate a significant contraction in 2024.

The Federal Reserve minutes provide insights into a complex landscape of diverging views among members. While the majority anticipates a measured approach to interest rate adjustments, uncertainty remains a defining feature of the policy path. Markets will closely monitor subsequent developments as they navigate through economic challenges in the coming years.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

ING

Economic

Central Bank

Bond

Can we really justify a negative term premium if rates are back to 'normal'?

One of the interesting aspects of the Fed's minutes was the assertion that the fall in long-term yields from the recent peak came two-thirds from a fall in the term premium and one-third from a taming in rate expectations. That can be broadly confirmed by looking at the Fed's measure of the 10yr term premium, which peaked out at around 50bp in October 2023, around the time that the 10yr Treasury yield was at around 5%. The 10yr Treasury yield is now just below 4% while the 10yr term premium is back in negative territory at around -30bp. A negative term premium is a problem, as technically it implies no compensation for taking on rolling duration.

So what does this mean? First, a negative term premium is not normal from a theoretical perspective. It has however been featured in recent years, especially during the pandemic years (in particular in 2020 when it was below -100bp for an extended period). A negative term premium essentially means that the level of rates is being dominated by the future path of short-term rates. So when we look at the 10yr yield at 3.9% currently, this effectively is a future mapping of the average path for short-term rates in the next 10 years. There is no compensation for taking on duration. In fact there is negative compensation currently.

That does not mean that 10yr rates cannot fall. They of course can. They can overshoot to the downside at will. It's just that there is less buffer in 10yr yields than is ideal from a long-term perspective, where you average in on an ongoing basis. You are getting compensation for the changing interest rate environment, and benefit as the Fed cuts rates, and especially to the extent that it might cut by more than expected. But that's it. Theoretically you could do just as well from a running yield perspective by averaging in on 2yr paper and taking the ups with the downs over the interest rate cycle in the next 10 years.

In a sense this is a remaining anomaly that needs to rectify itself at some point. In many ways there has been a return to normal in the level of rates relative to the pandemic years and the post-Great Financial Crisis ones. The inverted curve that we currently have is not a structural thing, but is perfectly normal at the tail end of a rate hiking cycle. A positively sloped curve is more normal. It can be driven entirely by future rate expectations (as it currently is). But really it should have a term premium. When we think of a normal 100bp curve between a 3% (future) funds rate and a 4% Treasury yield we also infer that there should be a positive term premium.

At some point this will become a discussion point when we get beyond the novelty of the rate cuts to come, and the clearest driver of that will be the realisation that a 6% deficit is something that should command compensation from a bond holder's perspective. Not so much from an elevation in default risk, but more a weight of a supply one. That said, be aware too of the 3.5% primary deficit (ex-interest rate payments). That's the bit that jacks up the debt/GDP ratio over time. In fact, this heads to 200% of GDP in the coming couple of decades on unchanged policies.

Now what we are doing with a negative term premium against that in the foreground is anyone's guess.

Today's events and market views

The focus for Europe will be on regional inflation readings for December due on Thursday, along with a series of December PMI readings. The likelihood is for some stalling on inflation reduction alongside confirmation of ongoing manufacturing and business weakness. In the US on Thursday we get the pre-payrolls ADP report for December, which for what it's worth anticipates 125k of jobs creation, slightly below the historical average of 150k per month. We also get jobless claims which are anticipated still in the low 200k territory and indicative of a decent labour market. That said, watch continuing claims as these are on the rise and suggesting a slow creaking of negativity. We will also see the latest Services PMI reading for December, which is seen as unchanged at 51.3. While that is above 50 and technically in an expansion mode, it's below the average in the area of 54. Don't expect too much reaction from these data though ahead of Friday's payrolls report.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Cohen

Central Bank

Economic

Federal Reserve officials project the U.S. central bank will cut its benchmark overnight interest rate during 2024, but the timing and pace of the reductions in borrowing costs will depend heavily on upcoming inflation and jobs data.

The Fed will hold its next policy meeting on Jan. 30-31, and while the central bank is expected to maintain its policy rate in the current 5.25%-5.50% range, data in the meantime could bring the prospects of rate cuts into better focus.

This year begins with a rush of major readings on the jobs market, consumer spending and inflation. Here is a guide to some of the numbers shaping the policy debate:

JOB OPENINGS (Released Jan. 3, next release Jan. 30)

Fed Chair Jerome Powell keeps a close eye on the U.S. Labor Department's Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings for each person who is without a job but looking for one. The ratio had been falling steadily towards its pre-pandemic level, but in November remained close to 1.4-to-1, still above the 1.2-to-1 level seen before the health crisis. Other aspects of the survey, like the quits rate, have edged back to pre-pandemic levels.

INFLATION (PCE released Dec. 22; next release CPI, Jan. 11)

Annual inflation by the Fed's preferred personal consumption expenditures price index fell to 2.6% in November and prices on a monthly basis declined for the first time since April 2020. The "core" index excluding food and energy prices also declined to 3.2%, the lowest that key gauge of trend inflation has been since April 2021.

Fed officials at their final policy meeting of 2023 forecast continued improvement in both measures this year.

Another measure, the consumer price index (CPI), declined to 3.1% on a year-on-year basis in November while the core rate held steady at 4.0%. Annualized measures of the monthly rate over the last few months, however, show these gauges continuing to decline. Charting the Fed's Economic Data Flow_2

RETAIL SALES (Released Dec. 14; next release Jan. 17)

Retail sales rose 0.3% in November, another in the series of "upside surprises" the economy delivered over the course of 2023. The "core" sales reading, which strips out gasoline, autos, building materials and food services, and more closely aligns with estimates of economic growth, also outpaced forecasts to come in at 0.4%, in the latest sign of the resilience of the U.S. consumer. On a trend basis, consumer spending rates are slowing in a way the Fed is hoping to see as it watches for signs the aggressive rate hikes it has delivered have begun to trim overall demand for goods and services.

EMPLOYMENT (Released Dec. 8, next release Jan. 5)

Job growth in November jumped to 199,000 from 150,000 in the prior month and the unemployment rate fell to 3.7% from 3.9%.

Even with the end of labor strikes involving about 40,000 workers, the latest employment report showed continued steady job gains. Alongside improved labor supply, with the number of available workers up more than half a million for the month, the report is consistent with the Fed's view of an economy that can continue growing while inflation also ebbs. Charting the Fed's Economic Data Flow_4

The pace of annual wage growth also continued a slow decline, though the reported 4.0% annual pace remains higher than many Fed officials feel is consistent with price stability. Charting the Fed's Economic Data Flow_5

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Economic

Stocks

Energy

Market Recap

Major US indices fell for the second straight day (DJIA -0.76%; S&P 500 -0.80%; Nasdaq -1.18%), as extreme bullish sentiments continue to unwind. After major indices locked in a stunning bounce-back in 2023, overbought technical conditions and overextended near-term breadth indicators may be driving appetite for some profit-taking into the new year, while validation for aggressive rate cuts priced through 2024 remain to be sought.

Overnight economic data continue to point to a cooling US economy, with the US Institute for Supply Management (ISM) manufacturing purchasing managers' index (PMI) contracting for the 14th straight month. The sharp decline in manufacturers' prices (45.2 versus previous 49.9) may bode well for further easing in inflation ahead, while softer job opening numbers for November (8.79 million versus 8.85 million forecast) point to cooling labour market conditions as well. That said, there were some disappointment from the Federal Reserve (Fed) minutes, which did not offer much clues on the timeline of rate cuts while citing an "unusually elevated degree of uncertainty" on the policy path. The US non-farm payrolls report on Friday will be on watch next.

For the Nasdaq 100 index, further downside may confirm a weekly bearish divergence in place, with the weekly moving average convergence/divergence (MACD) forming lower highs on earlier index peaks. The 16,000 level may be on watch for buyers, where a period of consolidation stands in November 2023. On the broader scale, it may have to take more to reverse the prevailing upward trend, with the weekly relative strength index (RSI) trading above the 50 level, alongside various moving averages (MA).

Asia Open

Asian stocks look set for a negative open, with Nikkei -1.21%, ASX -0.42% and KOSPI -0.62% at the time of writing. With Japan markets back from its holiday break, some catch-up losses may be at play, accounting for the relative underperformance. US Treasury yields were broadly flat to end the overnight session, but some unwinding in the risk environment, a firmer US dollar and higher oil prices may challenge room for upside in Asian equities. Chinese equities were somewhat resilient however, with the Nasdaq Golden Dragon China Index up 1.5% in the overnight session.

A series of PMI data will remain on watch ahead, notably with China's Caixin services PMI following recent downside surprises in the official data. Earlier, Japan's final au Jibun Bank Japan manufacturing PMI came in at its ten-month low (47.9 versus 48.3 in November) as a reflection of still-weak global demand. Some expectations are in place for a recovery in demand ahead, with any sustained upturn in production needed to provide the conviction for a policy pivot from policymakers.

For the USD/JPY, a stronger US dollar has put the pair back to retest a near-term resistance at the 143.80 level. A point of reckoning may be presented ahead, with its daily RSI back at its key 50 level, which it has failed to overcome since November 2023. Any successful move above the 143.80 level may leave the 146.45 level on watch next.

On the watchlist: Brent crude prices up more than 3%

A confluence of headlines around further tensions in the Red Sea and a full shutdown of Libya's Sharara oilfield from local protests have renewed concerns about global oil supply disruptions, which saw oil prices surge more than 3% overnight. This comes despite the broader risk-off move in global markets and a stronger US dollar, reflecting developments around geopolitical tensions as the greater driving force in the near term.

That said, prices have been trading on lower highs and lower lows since September 2023, with a descending channel in place. A series of resistance may still need to be overcome to indicate a potential trend reversal to the upside, which includes the upper channel trendline and its Ichimoku cloud resistance on the daily chart, leaving the US$82.50 level on watch for buyers to overcome. USD/JPY Back at Near-Term Resistance, Oil Prices Surged More Than 3%_3

USD/JPY Back at Near-Term Resistance, Oil Prices Surged More Than 3%_3

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Alex

Central Bank

Economic

Federal Reserve officials in December launched an expansive debate about a coming turn in U.S. monetary policy, with fresh concerns voiced about how long the economy could hold up under current high interest rates and at least initial discussion about when to halt the rundown of its balance sheet, according to minutes of the Dec. 12-13 meeting.

Fed Chair Jerome Powell had laid out the broad contours of the meeting at a press conference held at its conclusion, noting that the central bank was likely done raising interest rates and expected to begin reducing borrowing costs by the end of 2024.

While the minutes did not provide direct clues about when rate cuts might commence, they reflected a growing sense that inflation is under control and growing concern about the risks that "overly restrictive" monetary policy may pose to the economy.

The document caps a year that began with the Fed still uncertain about how much harm it might have to inflict on the economy to control inflation and Powell warning of "pain" to come, but ended with inflation falling faster than anticipated and policymakers becoming increasingly hopeful that they could tame inflation while skirting the recession even staff members thought was sure to come.

Initial debate about when to stop the rundown in the Fed's asset holdings showed policymakers edging towards reversal of a separate policy that, with less impact but in similar fashion to rate hikes, has also been restricting economic activity as part of the Fed's battle against the worst breakout of inflation in 40 years.

"Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings in particular," the minutes said.

Diminishing Inflation Risks

The core personal consumption expenditures price index on a six-month basis through November has run just below the Fed's 2% target. For the first time since June 2022 policymakers did not use the phrase "unacceptably high" to describe inflation, according to the minutes, while laying out reasons why they felt inflation would continue to fall.

There were still risks, with several participants saying they felt the Fed had gotten all the help it could expect from improved supply chains to lower inflation, with tight monetary policy still needed to dampen demand and new geopolitical risks possibly causing inflation progress to stall.

But participants also considered the overall risk of renewed inflation "as having diminished," while "a few" Fed officials saw a different problem developing: That the Fed would soon confront a "tradeoff" between its dual goals of controlling inflation and maintaining high rates of employment, a sacrifice Powell has pledged to try to avoid.

That specific concern has been conspicuously absent from Fed debates in recent months, with inflation falling while the unemployment rate, at 3.7%, remains at a level many economists consider near or even below full employment.

The fact that it has now surfaced suggests a growing sense that the economy could still hit a breaking point despite the growing hope among some Fed officials that a "soft landing" from high inflation is close.

"Several participants noted the risk that, if labor demand were to weaken substantially further, the labor market could transition quickly from a gradual easing to a more abrupt downshift in conditions," the minutes noted.

New jobs data for December will be issued Friday.

According to projections issued at the Fed's December meeting, all but two Fed officials see the benchmark policy rate lower by the end of 2024 than it is now, with a majority of policymakers seeing it trimmed by at least three quarters of a percentage point. The target rate has been held in a range of from 5.25% to 5.5% since July.

U.S. stocks slightly pared losses following the release of the minutes but were still down for a second straight day, while the U.S. dollar added to gains against a basket of currencies. U.S. Treasury yields were little changed.

Traders of interest rate futures largely stuck to bets that the central bank's Federal Open Market Committee would start to cut rates in March, with the policy rate seen ending the year in the 3.75%-4.00% range, 1.5 percentage points lower than where it is now.

"There is nothing in these minutes to dissuade us that the Fed will start to cut interest rates from this March onwards," said Paul Ashworth, Chief North America economist at Capital Economics.

No Start Signal Yet

The minutes in fact shed little direct light on when rate cuts might commence. Participants noted "an unusually elevated degree of uncertainty" about the economic outlook, with further rate increases still possible.

But "most" felt that monetary policy was having its intended impact on inflation and would continue to do so by dampening household and business spending and pulling inflation back to target.

Coming policy decisions would be "careful and data-dependent," the minutes said.

The Fed next meets on Jan. 30-31.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. U.S. job openings fell in Nov, signaling cooling labor demand.

2. Fed minutes affirm inflation progress and keep an eye on policy risk.

3. Nick Timiraos: Fed divided, rate cuts possible even if the economy expands.

4. Japan's manufacturing contracted in Dec on market uncertainty.

[News Details]

U.S. job openings fell in Nov, signaling cooling labor demand

The U.S. Department of Labor released JOLTS job openings for November on Wednesday, showing that job openings fell by 62,000 to 8.79 million. This is the lowest level since March 2021.

There were 128,000 fewer open positions in the transportation, warehousing, and utilities industries. Job openings fell by 58,000 in the federal government. However, vacancies increased by 63,000 in the wholesale trade sector. The job vacancy rate remained unchanged at 5.3%.

Hiring continued to lag, decreasing by 363,000 to 5.465 million. The professional and business services sector reported a decline of 163,000. The hiring rate fell to 3.5% from 3.7% in October. Resignations decreased by 157,000 to 3.471 million, the lowest level since February 2021. The drop was led by the professional and business services sector, where quits fell by 77,000. Layoffs and discharges fell 116,000 to 1.527 million in November, the lowest level in 11 months.

The rate of resignations dropped to 2.2% after staying at 2.3% for four consecutive months, signaling slower wage growth and price pressures in the economy. But with companies hoarding workers following difficulties finding labor in the aftermath of the COVID-19 pandemic, the job market should continue to underpin the economy and probably avert a recession this year.

Fed minutes affirm inflation progress and keep an eye on policy risk

On January 3, local time, the Federal Reserve released minutes of the December policy meeting. The minutes show that rate cuts were mentioned for the first time due to economic uncertainty, but at the same time some officials still thought interest rates would stay at the current level for a longer period or further interest rate hikes would be possible.

Some Fed officials emphasized that there was increased uncertainty about how long restrictive monetary policy would need to be maintained given the progress made in reducing inflation.

A few officials indicated that it would be appropriate for policy to remain restrictive for some time until it became clear that inflation was declining in a sustainable manner toward the target.

It should be noted that the discussion of rate cuts was in its infancy, and the minutes did not indicate when they might begin. Some voting members kept the view that further rate hikes could be possible in the future if needed.

The minutes reiterated that the upcoming policy decision will be "cautious and data-dependent". It recognized that the economy is facing increasing risks while inflation is falling faster than expected.

To summarize, Fed officials did discuss the potential for rate cuts in December, but the minutes showed no sense of urgency "to cut rates immediately". The carefully compiled minutes did show that the Fed has gradually turned to considering rate cuts, but the wording in the minutes makes it difficult to ignite the market expectations on rate cuts of 150 basis points in 2024.

Nick Timiraos: Fed divided, rate cuts possible even if the economy expands

The Federal Reserve's meeting minutes show that there were divisions within the bank, the Wall Street Journal reporter Nick Timiraos wrote on Monday. Some Fed officials believed that with supply chains and labor markets recovering from pandemic disruptions, the easiest part of the fight against inflation was complete. That could require the Fed to keep rates higher than might otherwise be needed to restrain economic activity. Others thought the improvement in supply was likely to continue, but core commodity prices were likely to rebound (suggesting that further rate hikes might be needed). However, the U.S. economic outlook has brightened considerably in recent months as inflation and wage growth have slowed down. This will provide more room for the Fed, that is, the Fed can quickly reduce interest rates when the economy weakens beyond officials' expectations. Even if the economy continues to expand, it could still open the door for the Fed to cut interest rates.

Barkin: A soft landing is in no way inevitable and more rate hikes are possible.

The Fed has made "good progress" in slowing inflation, but it is too early to start speculating about the first interest rate cuts, Richmond Fed President Tom Barkin said on Monday. Inflation is still higher than the target level and more stubborn than expected, especially in the housing and services sectors.

"A soft landing is increasingly conceivable but in no way inevitable", said Barkin. There are still obstacles, such as declining inflation and a slowing U.S. economy (not to the extent of triggering a recession); a decline in long-term interest rates could stimulate demand in interest rate-sensitive sectors, such as housing, which could push up inflation again. Therefore, more interest rate hikes cannot be ruled out. Monetary policymakers need to remain cautious.

Barkin also pointed out four major risk factors: 1. The factors driving the slowdown may be dissipating and there is a risk of a rebound in growth; 2. Unforeseen circumstances, such as geopolitical events or the regional banking shock like last March; 3. Inflation has not reached the central bank's target of 2%; 4. "Delayed landing" --Demand unexpectedly remains strong, causing inflation difficult to come down.

10-year U.S. bond yields once rose above 4% and expectations for big rate cut in 2024 are questioned.

The 10-year U.S. bond yield, known as the "anchor of global asset pricing," climbed above 4% before falling back. The 10-year U.S. bond yield once fell to a six-month low in December as U.S. inflation showed continued signs of cooling and the Federal Reserve clearly signaled the end of its most aggressive rate hiking cycle since the 1980s. But yields have rebounded significantly over the past two weeks as traders reassessed their expectations for rate cuts.

Japan's manufacturing contracted in Dec on market uncertainty

Japan's manufacturing PMI for December, released on Thursday, fell to 47.9 from 48.3 in November. This is the lowest level since it touched 47.7 in February last year, and it has been below the 50 threshold for seven consecutive months. This was mainly due to uncertainty in the market.

Respondents reported falling demand from key export customers such as Asian countries, Europe, and North America, as well as weak demand from important industries such as electronics. Nonetheless, cost pressures continued to mount, with rising raw material costs, especially for imported goods, and input price inflation rose to a three-month high.

The main sub-indices of output and new orders also fell at the fastest pace since February last year due to uncertainty in domestic and foreign markets.

[Focus of the Day]

UTC+8 21:15 U.S. ADP (Dec)

Risk Warnings and Disclaimers

Comments

Add to Favorites

Thomas

Economic

Stocks

Asian shares fell on Thursday and the dollar was near a three-week high as traders dialled back bets of steep and early rate cuts this year, with the minutes of the Federal Reserve's last meeting failing to provide clues to when U.S. cuts might start.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.26 per cent and was headed for third straight day of losses in a sobering start to the year. Japan's Nikkei fell 1 per cent on its first trading day of the year.

China stocks remained under pressure, with uncertainties about a recovery in the world's second-biggest economy keeping investors on the fence. The blue-chip CSI 300 Index fell 0.37 per cent, while Hong Kong's Hang Seng Index eased 0.1 per cent.

A private-sector survey showed on Thursday that China's services activity expanded in December at the fastest pace in five months thanks to a solid rise in new business, in contrast to an official survey on Sunday that showed a sub-index of services activity shrank again at the end of 2023.

Minutes of the Fed's Dec. 12-13 meeting released on Wednesday showed a growing sense among policymakers that inflation was under control and rising concerns about the risks that "overly restrictive" monetary policy may pose to the economy.

"The Fed minutes suggest that many members endorsed the 'higher rates for longer' narrative, while those that projected rate cuts in 2024 viewed cuts coming later in the year," said Qunicy Krosby, chief global strategist for LPL Financial.

Krosby said in an email the minutes underscored an "uncertain" policy path suggesting expectations for a rate cut in March may need to be ratcheted down further.

Markets are now pricing in a 70 per cent chance of the Fed cutting rates in March compared to 90 per cent a week earlier, according to CME FedWatch tool.

Investors have also lowered their expectations for the year, with futures pricing showing less than 150 basis points (bps) of easing anticipated this year versus 160 bps last week.

Goldman Sachs analysts though still expect the first rate cut in March and five total cuts in the year, calling the comments in the minutes dovish.

"We think it is already clear that inflation is moving down sustainably ... the comment implies that once this threshold is met, the policy rate should no longer be restrictive, not just that cuts should begin," they said in a note to clients.

Fed officials in December predicted 75 bps of rate cuts in 2024, driving money-market bets for around double that amount amid market optimism that spurred a year-end rally in stocks and bonds.

Richmond Federal Reserve President Thomas Barkin said on Wednesday the U.S. central bank was "making real progress" towards taming inflation without inflicting major damage on the job market, with a hoped-for soft landing "increasingly conceivable."

The spotlight will now be on the eagerly awaited U.S. nonfarm payrolls report scheduled for Friday to provide further clues on the labour market, which has shown signs of easing.

U.S. job openings dropped by 62,000 to 8.79 million for the third straight month in November, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report, on Wednesday.

Benchmark 10-year Treasury yields briefly climbed above 4 per cent on Wednesday before heading lower and were last at 3.920 per cent in Asian hours.

In the currency market, the dollar's strong start to the year remained unhindered. Against a basket of currencies, the dollar was up 0.088 per cent at 102.49, just shy of the three-week high of 102.73 it touched on Wednesday.

Against the yen, the dollar hovered near a two-week peak and last bought 143.42 yen, having jumped nearly 1 per cent higher on Wednesday.

U.S. crude rose 0.33 per cent to $72.94 per barrel and Brent was at $78.34, up 0.12 per cent on the day.

Oil prices climbed 3 per cent on Wednesday following a disruption at Libya's top oilfield that added to fears that mounting tensions in the Middle East could disrupt global oil supplies.