What To Look For From The Fed’s Final Meetings Of 2023

After reports of relatively tame inflation and some evidence that the employment situation may be softening, the Federal Reserve is not expected to raise rates at its September meeting.

There is still a chance that the Fed will raise rates again in 2023. However, for November, there may be more clues as to what the Fed is thinking, such as the Economic Summary projections, including where policymakers see rates at the end of the year.

The next meeting of the Fed, scheduled for September 20 at 2 p.M. ET, will discuss the possibility of raising interest rates. According to the FedWatch Tool provided by CME, there is approximately a 10 in 1 chance of this happening, as measured by interest rate futures.

It is unlikely that officials would view a rate cut as a possibility outside the eyes of the markets. Although this is far enough away, the markets are not currently expecting a move in rates. Then, the Fed’s scheduled decision on December 13, 2023 comes. If the Fed did not raise rates in September, it is likely that there will only be a slight increase in the bond market’s assessment of a rate hike in November, with approximately a 1 in 4 chance. Based on the assessment of the markets and comments from officials, it is possible that there could be a rate hike at the Fed’s decision on November 1. This could potentially be the last rate increase of this cycle, following the rate hike in July. The Fed will hold steady on rates unless there are abrupt changes in economic data. So, the slim chance of a surprising move by the Fed means that it manages expectations carefully, as is typically the case.

Easing the Impact of Inflation

The objective of the Federal Reserve is much higher than that of July, as annual core inflation stands at 4.7% following positive Consumer Price Index reports. Despite reaching the annual target of 2%, the Federal Reserve is seeking additional proof that inflation is under control since its annual target remains at 2%. This aligns perfectly with the Federal Reserve’s desired outcome, as the past two Consumer Price Index reports have indicated a decrease in inflation. The inflation landscape has been the primary factor influencing the Federal Reserve’s monetary choices in 2023.

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The Federal Reserve may be at a point where we can be patient and hold steady rates and let their actions on monetary policy do the work. Recently, Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, expressed this view, saying, “We believe we can be patient and hold steady rates on August 8.” The question is whether further rate hikes are needed, but the Fed plans to hold rates at relatively high levels for some time to help bring down inflation.

Disagreements between Federal Reserve officials could lead to varying rates. Depending on different perspectives, there is a possibility of a rate hike in 2023. It is important to note that there may not be a consensus on interest rates during the final meetings, which could mean that certain Fed officials still see the need for more rate hikes. Additionally, it is likely that additional rate increases will be necessary to reach the Federal Open Market Committee’s target of 2 percent inflation. Michelle Bowman, a Governor at the Federal Reserve, stated on August 5th that not everyone shares the same view.

Overview of Economic Forecasts

The data on inflation has been encouraging broadly, but the views of Fed officials may have evolved in recent months. However, their current projections suggest that interest rates may be lowered from 5.75% to 5.5% by the end of 2023, as indicated in the last update from the Fed’s June meeting. Projections Economic, which will analyze the signals for what might come in December or November, will be listened to by markets and most likely expect no changes in interest rates at the September meeting of the Fed, even if Powell’s Jerome’s press conference is attended.

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Employment

The Federal Reserve has held up better than expected in focusing its attention on inflation, without taking too many risks, making the trade-off for the economy obvious. Though, the Fed has devoted much of its attention to employment, which is part of its mandate, so by 2023.

If the data on jobs were to deteriorate, the Fed may be less inclined to raise rates for the next report on jobs, which will be released on September 20. However, the report on jobs for the month of July was encouraging, with all rates equal to the rates of the last report.

Decreasing Rates?

Depending on the fate of the economy, the dispersion of potential outcomes remains broad here. However, compared to the high interest rates over the past decade, which are still around 4%, it may still happen at a slow pace by the end of 2024, as indicated by recent projections from markets and officials, including the current estimates from the Fed. As the market’s focus turns to the Fed’s plans to bring down rates in 2024, the chance of the Fed raising rates diminishes again.

If inflation continues as expected, the conversation might shift towards the Federal Reserve’s intention to decrease interest rates in 2024. However, the likelihood of such scenarios might be diminishing, and the primary emphasis will be on the possibility of a rate hike in November. It is anticipated that the Federal Reserve will maintain steady rates during their September meeting.

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