November 1st FOMC Follow-Up

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  • The FOMC announced today it will leave the Federal Funds target rate unchanged at a range of 5.25 – 5.50%. This was a unanimous decision by the Committee and was consistent with market expectations for the meeting. This is the second consecutive meeting and third of the year at which the FOMC voted to keep rates constant.
  • The FOMC’s statement added the word “financial” to its language around tighter conditions impacting economic fundamentals. This hints at the idea from recent FOMC member media comments that the market-driven rise in bond yields has done some of the work for the Fed in supporting its restrictive policy stance.
  • In his press conference, Fed Chair Powell stated, “persistent changes in financial conditions can have implications for the path of monetary policy” and “in light of the uncertainties and risks…the Committee is proceeding carefully.”
  • When asked, Chair Powell said the Committee has not made any decisions about future meetings and that “the efficacy of the dot plot decays” regarding the additional rate hike members expected by the end of the year following September’s meeting.
  • He also said, “the Committee is not thinking about rate cuts at all” and remains principally focused on whether current policy is restrictive enough to begin to have confidence that inflation is on a sustainable path to 2%.
  • Stocks were up and treasury yields were down prior to the FOMC announcement. There was a further rally into today’s close following Chair Powell’s press conference. The S&P 500 ended up +1.1% while the 10-year treasury yield declined by 18 basis points on the day.

Economic Projections

  • Initial reports of the third quarter GDP show that the economy grew 4.9%, an outsized annual rate boosted by a surge in consumer spending. Chair Powell noted in his remarks that “reducing inflation is likely to require a period of below-potential growth” but also said during questioning that the Committee is still not forecasting a recession.
  • Though recent readings of inflation have fallen below 4% (the Fed’s preferred metric, Core PCE, was reported at 3.7% in October), “the process of getting inflation sustainably down to 2% has a long way to go.”
  • Unemployment remains at 3.8% and continued job creation has been met with an increase in the labor participation rate. Labor demand still exceeds the supply of available workers, though there is progress towards a better balance in the tight labor market.

The FOMC is next scheduled to meet December 12 – December 13, 2023.


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