The FOMC delivered a well-flagged "hawkish hold" on Wednesday and reiterated a data-dependent approach to future policy action.
In line with the majority of analysts, rate setters voted to keep interest rates at the 5.25% to 5.50% range following two days of deliberations.
The accompanying statement didn’t stray too far from recent directives and reiterated that: “The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time."
The communique went on to acknowledge past cumulative monetary policy tightening and the lagged effects on the economy and inflation. “The forward guidance from the FOMC’s policy statement and its updated macro and interest rate forecasts indicates an ongoing hawkish policy stance and a higher-for-longer rate path,”
Nationwide chief economist Kathy Bostjancic wrote, “The reason is that inflation remains elevated and should continue to retreat only gradually.”
Revised forecasts
The updated Summary of Economic Projections (SEP) showed an unchanged median dot of 5.6% for 2023 and a upwardly revised median dot for 2024 of 5.1% versus the previous 4.6%. The median 2025 dot was similarly moved up by 50 basis points to 3.9% and the 2026 dot was 2.9%.
Staff revised the GDP growth projection markedly higher for the rest of this year and next, whilst the 2025 growth forecast was left unchanged.
Headline inflation was nudged a little higher for 2023, matching forecasts for increased underlying energy prices. The Fed’s favoured inflation measure, core PCE inflation, was revised lower for 2023 compared to June, albeit estimates for 2024-25 were mostly unchanged.
“The Fed still has one [quarter point] hike in their SEP for this year with 12 FOMC members backing the move while seven look for stable policy rates through to year-end,” noted ING chief economist James Knightley. “However, they have upped the view for next year so there are only 50bp of rate cuts pencilled in rather than the 100bp that was viewed as the most likely outcome back in June.”
Investors reduce bets on early rate cuts
Market positioning following the meeting pushed US two-year note yields to near 17-year highs, as pricing quickly reflected a flatter treasury curve.
“Our baseline view remains that the Fed is done hiking rates for this cycle but will be slow to cut rates even though we continue to forecast a mild recession next year,” Nationwide’s Bostjancic posited. “Inflation remains the critical factor determining whether the Fed is indeed done hiking and when they decide to eventually cut rates.”
Source: Federal Reserve
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- Fed Leaves Rates On Hold As Expected
- Tighter credit conditions to weigh on economy
- Inflation has moderated somewhat, Powell says
- Statement repeats “data-dependent” message
- Markets push out first rate cut deeper into 2024
By Harry Daniels
LiveSquawk News
@HarryDaniels71
21 September 2023 | 11:30 GMT
The FOMC delivered a well-flagged "hawkish hold" on Wednesday and reiterated a data-dependent approach to future policy action.
In line with the majority of analysts, rate setters voted to keep interest rates at the 5.25% to 5.50% range following two days of deliberations.
The accompanying statement didn’t stray too far from recent directives and reiterated that: “The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time."
The communique went on to acknowledge past cumulative monetary policy tightening and the lagged effects on the economy and inflation. “The forward guidance from the FOMC’s policy statement and its updated macro and interest rate forecasts indicates an ongoing hawkish policy stance and a higher-for-longer rate path,”
Nationwide chief economist Kathy Bostjancic wrote, “The reason is that inflation remains elevated and should continue to retreat only gradually.”
The updated Summary of Economic Projections (SEP) showed an unchanged median dot of 5.6% for 2023 and a upwardly revised median dot for 2024 of 5.1% versus the previous 4.6%. The median 2025 dot was similarly moved up by 50 basis points to 3.9% and the 2026 dot was 2.9%.
Staff revised the GDP growth projection markedly higher for the rest of this year and next, whilst the 2025 growth forecast was left unchanged.
Headline inflation was nudged a little higher for 2023, matching forecasts for increased underlying energy prices. The Fed’s favoured inflation measure, core PCE inflation, was revised lower for 2023 compared to June, albeit estimates for 2024-25 were mostly unchanged.
“The Fed still has one [quarter point] hike in their SEP for this year with 12 FOMC members backing the move while seven look for stable policy rates through to year-end,” noted ING chief economist James Knightley. “However, they have upped the view for next year so there are only 50bp of rate cuts pencilled in rather than the 100bp that was viewed as the most likely outcome back in June.”
Market positioning following the meeting pushed US two-year note yields to near 17-year highs, as pricing quickly reflected a flatter treasury curve.
“Our baseline view remains that the Fed is done hiking rates for this cycle but will be slow to cut rates even though we continue to forecast a mild recession next year,” Nationwide’s Bostjancic posited. “Inflation remains the critical factor determining whether the Fed is indeed done hiking and when they decide to eventually cut rates.”