Rates
- The FOMC announced yesterday 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 heading into the meeting.
- This is the second meeting this year at which the FOMC chose not to raise rates. The Committee previously kept rates unchanged at the June meeting.
- The Fed’s new Summary of Economic Projections communicated higher expectations for the projected policy path for the Federal Funds rate (the dot plot) going forward in 2024 and 2025. This change in expectations added 0.5% to the year-end 2024 and 2025 rate projections. The dot plot continues to project an additional rate hike before the end of this year.
- During the press conference, Fed Chair Powell stated the committee is “in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate.”
- Following the announcement, bond yields rose modestly across most of the yield curve. Equity markets closed the day down, with the S&P 500 down 0.94% as investors digested the Fed’s “higher for longer” dot plot.
Economic Conditions
- Revised economic projections suggested a significant increase in GDP expectations relative to the June report. 2023 GDP was revised up to 2.1%, compared with just 1.0% in the projection from June. Likewise, the GDP projection for 2024 increased from 1.1% to 1.5%.
- In line with the Fed’s higher GDP projection, the projected unemployment rate for 2023 was reduced from 4.1% in the June projection to 3.8% in the current version. 2024 and 2025 projections received a larger 0.4% reduction in unemployment expectations.
- Chairman Powell suggested during his opening remarks at the press conference that FOMC participants expect the labor market to continue to rebalance toward equilibrium, “easing upward pressures on inflation.”
- Revisions to inflation projections were relatively small, with PCE inflation up 0.1% for 2023 and 2025, while the Core PCE inflation projection declined 0.2% for 2023 and increased 0.1% for 2025. 2024 inflation expectations were unchanged from June.
The FOMC is next scheduled to meet October 31 – November 1, 2023.
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