As the Federal Reserve prepares for its upcoming meeting on September 20, economists and analysts are overwhelmingly predicting that interest rates will remain unchanged. Currently, the Fed funds target rate range is set at 5.25-5.5%, and experts believe that it will stay within this range. This decision would align with recent communications from the Fed and market expectations.
Bank of America analysts have stated their expectation that the Fed will maintain the target range for the federal funds rate and make no changes to its balance sheet policies. The CME FedWatch tool shows a 98% probability that the Fed will keep rates steady, with only a 2% chance of a 25 basis point hike.
The decision to pause on interest rate increases comes as the Federal funds' target rate is at its highest since 2007. This has led to decreased transaction volumes, lower property valuations, and high capital costs.[0] These factors are not expected to change in the near future.[0]
Nomura economists have also weighed in, stating that they expect the Fed to keep rates on hold and cite data since the July meeting as supporting their prediction. Core inflation has eased significantly, and there are signs of a sustainable disinflation process beginning.[1] The labor market has also cooled gradually, with slower job growth and fewer job vacancies in recent data.[2] They anticipate that the summary of economic projections will show faster growth and lower core inflation in 2023, with minimal changes to forecasts for 2024 and beyond.[1]
In July, the Federal Reserve raised the Fed funds policy rate range by 25 basis points to 5.25-5.5%. The minutes from that meeting revealed that officials still had a bias towards further rate hikes due to inflation risks.[2] However, Chair Powell's comments at the Jackson Hole Conference in August indicated a sense that the economy may not be cooling as expected, potentially necessitating further action to ensure sustainable inflation returns to target.[2]
Market pricing based on the CME FedWatch tool suggests that the Federal Reserve is widely expected to maintain the federal funds rate at its September meeting. Moderating core inflation, cooling labor market conditions, and stabilizing the housing market all support the case for a pause in rate hikes.[3]
As the meeting approaches, it is widely anticipated that interest rates will remain unchanged. The Federal Reserve is expected to hold rates steady, with some investors divided on whether there will be a rate increase later in the year.
This decision is seen as positive news for savers, as it allows them to maintain higher interest rates on their savings. Additionally, the pause in interest rate hikes is likely due to a slowing in inflation. However, the door remains open for another rate increase as early as November.
While the Federal Reserve is expected to take a break from rate hikes, there is concern on Wall Street that policymakers may push out the timing for rate cuts next year, which could have a negative impact on the market.[4] The S&P 500 has already slipped below key support levels, and a market-unfriendly outlook from the Fed could lead to further selling pressure.[4]
The Federal Reserve's economic projections, economic forecasts from Bank of America, and Chair Powell's news conference will all provide important insights into the central bank's thinking and potential future actions. Investors will be closely watching for any hints or signals about the direction of interest rates and the overall health of the economy.
In conclusion, the consensus among economists and analysts is that the Federal Reserve will keep interest rates steady at its upcoming meeting. This decision is based on factors such as moderating inflation, cooling labor market conditions, and stabilizing housing market conditions.[3] While there is uncertainty about future rate increases, the current pause is seen as positive for savers and may provide some relief to the market. The economic projections, forecasts, and news conference will provide further clarity on the Federal Reserve's stance and potential future actions.
0. “The Fed's Next Move: CRE Experts React” Commercial Property Executive, 19 Sep. 2023, https://www.commercialsearch.com/news/the-feds-next-move-cre-experts-react/
1. “FOMC preview: Has the Fed done enough? By Investing.com” Investing.com, 19 Sep. 2023, https://www.investing.com/news/stock-market-news/fomc-preview-has-the-fed-done-enough-3177517
2. “Fed set to hold, but signal the potential for a final hike” ING Think, 15 Sep. 2023, https://think.ing.com/articles/fed-to-hold-but-signal-the-potential-for-a-final-hike
3. “How Will the US Dollar React to Fed Rate Decision Next Week?” DailyFX, 15 Sep. 2023, https://www.dailyfx.com/news/how-will-the-us-dollar-react-to-fed-rate-decision-next-week-20230915.html
4. “Federal Reserve Meeting: Why Fed's Powell Won't Upset The S&P 500 Wednesday” Investor's Business Daily, 19 Sep. 2023, https://www.investors.com/news/economy/federal-reserve-meeting-why-fed-powell-wont-upset-the-sp-500-wdnesday
