The much-anticipated Federal Open Market Committee (FOMC) meeting took place on Wednesday, and as forecasted, the Federal Reserve opted to keep the target rate for Fed Funds unchanged. This decision maintained the rate at 5.50%, a stance consistent with their previous meeting on July 26, 2023. Impressively, this marks the fourteenth consecutive time that the forecasting has been on the mark since March 16, 2022.
While the Fed indeed left the door open for future rate hikes, it was made clear that any potential increase might not be on the horizon until 2024. The FOMC unanimously voted to maintain the current target range for the Federal Funds rate, with no mention of the infamous “dots,” the Summary of Economic Projections (SEP).
Fed Chair Jay Powell’s post-announcement press conference provided further insight into the central bank’s thinking. The Fed finds itself in a predicament with stubbornly high inflation, which has been hovering around 3.7%. Despite acknowledging the issue, Powell seemed somewhat relaxed, referencing alternative inflation indicators that suggested a potential decline. He even mentioned the possibility of reaching the “terminal rate” where inflation could naturally decrease without further rate hikes.
However, Powell’s statements emphasized flexibility, indicating that the fight against inflation was not over. The decision to raise rates again is contingent on observing slower economic growth, a weakening labour market, and the resolution of supply chain issues. In essence, the Fed remains cautious, ready to act if necessary.
One of the discussion points during the meeting was the “term premium,” a concept that garnered significant attention in recent weeks. This term premium measures the difference between nominal rates on long-term Treasury securities and the rate of inflation, a factor that could potentially affect inflation. Powell’s response to this debate was somewhat cryptic, indicating that the Fed is not sure if term premium or other factors like the strength of the dollar would persistently impact inflation.
The meeting concluded with the Fed’s commitment to maintain the current course. They did not entertain the idea of cutting rates, and they do not have a recession in their forecast. However, the Federal Reserve’s history of adjusting rates when necessary and the unpredictability of economic downturns warrant ongoing attention.
In the end, this FOMC meeting was marked by its lack of commitment and decisive action. While not much ground breaking news emerged, it’s essential to stay vigilant as significant events continue to unfold. The next Fed meeting is scheduled for December 13, and while the current forecast doesn’t anticipate rate hikes, the uncertain global landscape and the Fed’s cautious stance mean anything is possible.
Sven Franssen