The Federal Reserve's benchmark rate, the Fed funds rate, has been a topic of scrutiny as experts analyze its long-term trajectory.[0] While there has been a slight increase in expectations for the near-term, there is a prevailing belief that the Fed may not be finished with rate adjustments. It is possible that there could be an additional increase of 25 to 50 basis points before a downward turn begins, indicating anticipated rate cuts starting in 2024.[0]
Matthew Luzzetti, chief U.S. economist at Deutsche Bank, wrote in a research note that they expect the Fed to hold rates steady at the September FOMC meeting. However, he also mentioned that there is still more work to be done to slow the economy and cool inflation, so there may be potential for further tightening this year.[1]
There is growing risk that the Fed could raise rates to levels above what the markets currently anticipate and keep them there for a longer period of time. This is because the Fed still believes there is more work to be done to slow the economy and cool inflation.
Next week, the Federal Reserve will hold its monetary policy meeting. Market participants anticipate that rates will remain unchanged. Analysts at Wells Fargo also expect rates to stay the same and believe that the economic projections from FOMC members will reflect a more optimistic outlook for the US economy.[2]
The market pricing based on the CME FedWatch tool suggests that the Fed is widely expected to keep the federal funds rate steady at its meeting on September 19-20. Core inflation has been moderating, labor market conditions are cooling, and the housing market is stabilizing, all of which argue for a pause in rate hikes.[3]
On Friday, September 22, the S&P flash U.S. services and manufacturing purchasing managers' indexes (PMI) are due for release.[4] [5]
The Fed's interest rate decisions for the rest of 2023 are scheduled to be announced on September 20, November 1, and December 13. Each decision will be communicated following a two-day meeting of Fed officials, and Jerome Powell, Chairman of the Federal Reserve, will host a press conference half an hour after each rate announcement.[4]
The Federal Reserve revealed its schedule for the remaining meetings of 2023, with potential implications for interest rates. The November meeting could trigger an interest rate hike, while the September and December meetings are expected to maintain the status quo.[6]
In addition to rate decisions, the Fed will provide updates on its economic forecasts, including interest rate projections, during the September and December meetings.[6] [6]
Fed Chair Jerome Powell is likely to emphasize data-dependency in his assessment and may leave the door open for further tightening to cool inflation and above-trend growth.[3] His message could be similar to his message at the Jackson Hole global central bankers meeting, where he mentioned the potential for further tightening.[3]
The U.S. economy has held up better than expected, with solid labor market conditions and robust consumer spending. Despite expectations of a potential recession, the economy has proven to be resilient.
In August, the inflation rate rose by half a percentage point to 3.7%, while the core inflation rate declined further to 4.3%.[7] The recent data suggests that the U.S. economy remains resilient, but there are signs of moderating labor costs and more modest job creation.
The upcoming week will be pivotal in shaping the Federal Reserve's outlook for interest rates.[8] The Fed is widely expected to pause its rate hiking campaign at the conclusion of its FOMC meeting.[9] The market is anticipating this pause, but the Fed may change its mind depending on interest rate projections.
Financial conditions have tightened over the summer, which reduces the need for further rate hikes.[10] The Fed is becoming more cautious on growth, even though there are no immediate signs of rapid weakening.[10]
Market prices suggest around four 25 basis-point rate cuts for 2024, which would still leave the monetary policy stance fairly restrictive in real terms.[10] The Fed may consider further hikes if the underlying growth backdrop is significantly stronger than anticipated.[11]
Overall, the Federal Reserve's decisions regarding interest rates and the trajectory of the economy are closely watched by market participants. The upcoming meeting and subsequent announcements will provide insight into the Fed's outlook for the US economy and its stance on monetary policy.
0. “Federal Reserve's upcoming meeting fuels speculation on interest rate trajectory By Investing.com” Investing.com, 15 Sep. 2023, https://www.investing.com/news/economy/federal-reserves-upcoming-meeting-fuels-speculation-on-interest-rate-trajectory-93CH-3175845
1. “How High For How Long? Fed Meeting Will Give Clues On Interest Rates” Investopedia, 15 Sep. 2023, https://www.investopedia.com/how-high-for-how-long-fed-meeting-will-give-clues-on-interest-rates-7970534
2. “Fed Preview: Unchanged rates and a more optimistic outlook – Wells Fargo” FXStreet, 11 Sep. 2023, https://www.fxstreet.com/news/fed-preview-unchanged-rates-and-a-more-optimistic-outlook-wells-fargo-202309111325
3. “Market update: how will the USD react to Fed rate decision next week?” IG, 15 Sep. 2023, https://www.ig.com/en-ch/news-and-trade-ideas/market-update–how-will-the-usd-react-to-fed-rate-decision-next–230915
4. “Rate Decision, Manufacturing Data Coming Next Week” Schaeffers Research, 14 Sep. 2023, https://www.schaeffersresearch.com/content/news/2023/09/14/rate-decision-manufacturing-data-coming-next-week
5. “Federal Reserve's interest rate decision amid key economic data releases next week By Investing.com” Investing.com, 14 Sep. 2023, https://www.investing.com/news/stock-market-news/federal-reserves-interest-rate-decision-amid-key-economic-data-releases-next-week-93CH-3174783
6. “Fed weighs potential interest rate hike in November amid inflation concerns By Investing.com” Investing.com, 15 Sep. 2023, https://www.investing.com/news/economy/fed-weighs-potential-interest-rate-hike-in-november-amid-inflation-concerns-93CH-3175041
7. “Fed can pause next week – Commerzbank” FXStreet, 13 Sep. 2023, https://www.fxstreet.com/news/fed-can-pause-next-week-commerzbank-202309131337
8. “Fed Meeting Preview: Powell Prepares to Deliver a Hawkish Pause Next Week | investing.com” Investing.com, 15 Sep. 2023, https://www.investing.com/analysis/fed-meeting-preview-powell-prepares-to-deliver-a-hawkish-pause-next-week-200641868
9. “Fed: To increase or not to increase: That is the question” Forex Factory, 15 Sep. 2023, https://www.forexfactory.com/news/1241604-fed-to-increase-or-not-to-increase-that
10. “Research US – Fed preview: Plotting the way forward” FXStreet, 15 Sep. 2023, https://www.fxstreet.com/analysis/research-us-fed-preview-plotting-the-way-forward-202309150205
11. “Fed Preview: Plotting the Way Forward” Action Forex, 15 Sep. 2023, https://www.actionforex.com/contributors/fundamental-analysis/518734-fed-preview-plotting-the-way-forward
