Fed set to keep interest rates unchanged, weigh future hikes

The Federal Reserve is expected to hold interest rates in a range on 5.25%-5.50% at the conclusion of its meeting on Wednesday, though possibly keep the door open to further rate hikes in the coming months.

The Fed in July raised rates to a 22-year high as it continued the most aggressive rate-hiking campaign in four decades. Its updated economic forecasts released in September suggested one additional rate hike would be needed this year to bring inflation back to its 2% target.

The Fed will announce its monetary policy decision at 2:00 p.m. ET Wednesday followed by a press conference with Fed Chair Jerome Powell at 2:30 pm ET.

Powell signaled in a speech at the Economic Club of New York last month the central bank could hold rates steady at its November policy meeting. The Fed chair also warned, however, that inflation was still too high and more rate increases are still possible if the economy stays surprisingly hot.

“Given the uncertainties and risks, and how far we have come, the Committee is proceeding carefully,” Powell said.

Officials are now trying to determine whether they’ve raised rates enough that holding them at these levels for sometime would bring inflation back to target.

Federal Reserve Chair Jerome Powell speaks at a lunch hosted by the Economic Club of New York at the Hilton Hotel on October 19, 2023 in New York City. (Photo by Spencer Platt/Getty Images)

“While there isn’t an expectation for a rate increase at [this] week’s Fed meeting, the FOMC will acknowledge the underlying strength of the economy given a still-resilient labor market,” LPL Financial strategist Quincy Krosby said. “They may find it appropriate to suggest that financial conditions are still not tight enough to quell consumer spending.”

Last week, the first estimate of third quarter GDP showed growth clocked in at a whopping 4.9% annualized rate over the summer months, driven in large part by strong consumer spending, punctuated by a surge in retail sales in September.

But new spending data out for September showed consumers are spending more than they are earning.

Adjusted for inflation, consumers increased spending in each of the last three months while real disposable income fell over the same period, raising the question of how much longer spending could last at these levels.

With no new interest rate projections or economic forecasts released this meeting, all eyes will be on Powell and his comments on the outlook for monetary policy.

Powell, speaking on October 19, noted that the economy is a story of “much stronger demand” and that it “may just be that rates haven’t been high enough for long enough.”

The Fed’s preferred inflation gauge — “core” PCE — showed prices rose 0.3% over the prior month in September, the most in four months, while annual price increases slowed modestly to 3.7% from 3.8% in August.

The 3.7% is in line where officials expected inflation to end the year, offering the prospect inflation could be lower than officials thought by the end of this year.

Powell has also said that the central bank is closely watching a recent surge in long-term bond yields; other Fed officials have said recently that if long-term interest rates remain elevated there may be less need for the Fed to act.

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