December 14th FOMC Follow-Up

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  • The FOMC voted to raise the Federal Funds target rate to a range of 4.25 – 4.50%. The decision was supported unanimously by the members of the Committee.
  • This 50 basis point increase is a downshift from the 75 basis point rate hikes that were implemented following the June through November FOMC meetings.
  • The statement signaled the Fed plans to continue raising rates at upcoming meetings as the FOMC seeks to contain inflation. In his press conference remarks, Chairman Powell noted that despite a welcome reduction in inflation data for October and November, “it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”
  • The Dot Plot now shows Fed members predicting a median Fed funds rate of 5.1% by the end of 2023, up from 4.6% in the September projection. This change brings the FOMC generally in line with recent market pricing.
  • Individual FOMC participant’s expectations for future rate hikes are meaningfully dispersed, particularly into 2024 and 2025. As rates rise, the Committee’s future decisions become more challenging as market conditions become less one-sided.
  • Equity markets, which had risen earlier in the day, declined following the Fed’s announcement.

Economic Projections

  • The Committee’s new Summary of Economic Projections included some notable updates, particularly a reduction in expected 2023 GDP. Compared with the September projection, Committee member’s median 2023 GDP forecast was reduced by more than half, dropping from 1.2% to 0.5%. Expectations for 2024 GDP decreased only a modest 0.1% and there was no change to the 2025 or longer run projections.
  • Unemployment projections were increased by 0.2% over previous projections for 2023 through 2025, with unemployment expected to anchor near 4.6% in coming years.
  • Committee members expect PCE inflation to fall to the Fed’s 2% target in their longer run projections, with the inflation number dropping to 2.1% by the end of 2025.

The FOMC is next scheduled to meet January 31 – February 1, 2023


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