FED MAINTAINS INTEREST RATES AT 22-YEAR HIGH, SIGNALS ONE MORE HIKE THIS YEAR

Người viết: Minmaxx lúc 22.09.2023
Tin tức

In its latest meeting, the Federal Reserve (Fed) opted to keep interest rates unchanged, maintaining the range of 5.25% to 5%—the highest in approximately 22 years.

Concluding its policy meeting on September 20, the Fed signaled a potential additional rate hike before the end of the year and fewer rate cuts than previously expected in 2024.

With the anticipated rate hike later this year, the Fed would complete dozens of increases since beginning its tightening cycle in March 2022.

In this meeting, the market also predicted that the Fed would not raise interest rates, maintaining the range of 5.25% to 5%, the highest level in approximately 22 years.

Although the Fed did not raise interest rates, the market remains uncertain about the next steps of the FOMC. Projections in the Fed's dot plot suggest that the central bank may raise interest rates once more this year, followed by two rate cuts in 2024—two fewer than the most recent update in June. As a result, the federal funds rate is expected to be around 5.1%.

Of the committee members, 12 agreed to implement one more interest rate hike, while 7 members opposed it. Additionally, projections for the benchmark interest rate have been revised upwards for 2025, now averaging 3.9%, compared to the previous estimate of 3.4%.

For the long term, FOMC members indicated that the benchmark interest rate will be around 2.9% by 2026. This rate is higher than the Fed’s neutral rate, which is the interest rate that neither stimulates nor slows the economy. This is also the first time FOMC has provided a projection for 2026, with the long-term neutral rate expected to be 2.5%.

In addition to maintaining relatively high interest rates, the Fed is continuing to reduce its bond holdings, cutting approximately $815 billion from its balance sheet since June 2022. The Fed removes about $95 billion in Treasury securities and mortgage-backed securities (MBS) from its balance sheet each month, instead of reinvesting.

Moreover, committee members significantly adjusted their growth expectations for this year, with GDP now expected to grow by 2.1%. This is more than double the estimate from June, indicating that members are not forecasting an imminent recession. The 2024 GDP outlook has been revised up from 1.1% to 1.5%.

Latest Dot-Plot Chart

Inflation is also expected to decrease by 0.2 percentage points from June, reaching 3.7%. Officials predict the unemployment rate will fall from the previous 4.1% to 3.8%.

Furthermore, the post-meeting announcement revealed a shift in the officials' economic outlook. The FOMC stated that economic activity is "growing at a solid pace," whereas previously, it was described as "moderate." The committee also noted that labor market growth "slowed in recent months but remains elevated," as opposed to the earlier description of being "robust."

Currently, there are increasing signs that the Fed may achieve its "soft landing" goal of controlling inflation without pushing the economy into a deep recession. However, the future remains uncertain, and Fed officials are cautious about declaring victory too soon.

The U.S. labor market continues to show strong prospects, with the unemployment rate at 3.8%, just slightly higher than a year ago. Inflation data also reflects positive trends, although current levels remain significantly above the Fed's 2% target. The Fed’s preferred inflation gauge—core CPI—was at 4.2% in July.

U.S. consumers, who account for about two-thirds of economic activity, have continued to spend robustly, despite declining savings and credit card debt surpassing $1 trillion for the first time. In a recent University of Michigan survey, long-term inflation expectations for both 1 and 5 years were at their lowest levels in many years.

However, surveys reflect growing concern about the current state of the economy. In CNBC's latest All-American Survey, 69% of respondents expressed dissatisfaction with the U.S. economy, marking a record high in 17 years.

(Source: CNBC)