- Fed expected to hold main rate at 5.25-5.50% range 

- Chair Powell poised to signal possibility of one more hike  

- FOMC to update economic projections and dot plot 

- Announcement due 18:00 GMT/14:00 EST 

- Press conference scheduled for 18:30 GMT /14:30 EST 

By Harry Daniels    

LiveSquawk News    

@HarryDaniels71    

19 September 2023 | 11:30 GMT    

Fed Chair Jerome Powell is expected to communicate that the US central bank is not yet done with the current tightening cycle despite overwhelming expectations that rate setters will vote to keep rates on hold at the September meeting.  

Rising energy prices, stubborn inflation prints, and solid GDP growth data are not anticipated to be enough to persuade policymakers on the board to lift borrowing levels from the current 5.25%-5.50% corridor, according to a poll of analysts.  

In fact, investors are currently wagering only a 50% chance of a further hike by December, with November the next window of opportunity.  

Officials have been keen to impress on the markets that the US central bank remains vigilant and ready to take needed steps should it view past action as insufficient in damping activity. UAW strike action and concerns over a government shutdown are expected to drag only temporarily on activity.  

US investment bank Morgan Stanley noted that the Fed will likely look through non-core inflation data. “As in Europe, the increases in oil prices would lower purchasing power for consumers in the near term, further limiting economic activity, part of the objective of higher policy rates.  

“With the Fed’s focus on core rather than headline inflation, the last data print gives more reason to think the Fed is done hiking.” 

Observers see the rate announcement as a foregone conclusion and instead will look for detail in the Summary of Economic Projections (SEP), which includes the latest dot plot from board members. 

BofA said it expects the 2023 median policy rate forecast to show one more 25bp hike, for a terminal rate of 5.5-5.75%. “Perhaps the most important forecast is the 2024 median, which in our view will shift up by 25bp to 4.875%, reflecting just 75bp of cuts next year.” 

JP Morgan’s Michael Feroli predicted the median dot will stay unchanged, showing one more hike to 5.5-5.75%. “The mean should come down, and we think there’s about a one-in-three chance the median comes lower to show no hike,” he noted. “The rationale for expecting an unchanged median is partly inertia, as Committee participants might not want to mess with what’s working.” 

Central bank watchers do not expect Powell to venture too far from the current message and expect the statement to keep the passage: “In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” 

BofA posited that recent data should leave the Fed encouraged by ongoing disinflation but concerned about re-acceleration in inflation because of the strength in activity. “We expect Chair Powell's message at the press conference to be balanced and very similar to his comments at Jackson Hole, since the outlook has not fundamentally changed since late-August.” 

In a client note, Michael Pearce, lead US economist at Oxford Economics, wrote: “The updated communications will not explicitly rule out policy tightening, but we expect [the] Fed Chair to reiterate that […] additional hikes would be conditional on a reacceleration in job gains or underlying wage or price inflation.,”