After the November FOMC Meeting, Rates Remain Unchanged—For Now

Confirmed at recent meeting of the Federal Reserve Board Expectations to maintain interest rates at current levels. Key interest rates are expected to remain in the 5.25-5.5% range at least until the next FOMC meeting in December.

What is the message from the Fed?

When asked about the possibility of further rate hikes in the near future at the post-meeting press conference, Fed Chairman Jerome Powell indicated that he was prepared to do so again, but is it clear that market conditions are tight enough to make a rate hike possible? I admitted that I don’t know. This will help the Fed achieve its goal of lowering inflation to 2%.

Powell told reporters that market conditions had reached a point where they were sufficiently constrained to prevent further spikes in inflation. I’m not convinced.” “Inflation is coming down, but remains well above our 2% target. A few months of good data is just the start we need to build confidence.”

Powell also emphasized that several external market conditions continue to weigh on the economy, making further rate hikes unnecessary in some ways. Chairman Powell was referring to the recent market-driven rise in Treasury yields. mortgage interest rate. These interest rates affect the economy in their own ways, and Chairman Powell suggested continuing to monitor the impact if these trends continue.

What’s the word from everyone else?

Seema Shah, chief global strategist at Principal Asset Management, said Powell’s statement “highlights the financial conditions that are weighing on the economy, which suggests that the Fed has minimal appetite for further rate hikes.” “This may indicate that they have it.”

But Shah feels there are potential dangers to this approach.

“[W]Powell’s overly dovish approach may risk reigniting inflationary pressures, as the economy remains very hot and inflation slowing could stall. Mr. Powell will have to strike a careful balance today and in the coming months. ”

Other experts agree that the Fed needs to closely monitor its strategy, given the very real possibility of a resurgence in inflation. Goldman Sachs Asset Management’s Whitney Watson told CNBC that inflation has declined because “the resilience of the economy has not slowed labor market rebalancing or revived wage and price pressures.” He said that the decline is likely to proceed naturally.

Will you wait and see what happens?

Nevertheless, there were still risks in leaving the economy in balance. The Fed may be forced to act again soon. Mr Watson warned: “The combination of rising inflation expectations due to rising gasoline prices and strong inflation economic activity, the outlook for further interest rate hikes remains unchanged. ”

Powell pre-empted potential criticism of indecision by stressing that the Fed is prepared to raise rates again if necessary. “The idea that if you stop one or two meetings, it will be difficult to procure again is not correct,” he said. “The committee always does what it deems appropriate at the time.”

what did Given that the economic trajectory could take many months to fully develop, Chairman Powell’s belief that a patient, wait-and-see approach could prove beneficial is striking. remained in “I still believe, and most of my colleagues believe, that we need some slowing in growth and some softening in the labor market to fully restore price stability,” he said. Ta. The processes he mentions take him much longer than a month or two to really kick into gear.

In other words, while the Fed hasn’t ruled out another rate hike next month, almost everyone interpreted Powell’s comments as indicating that further rate hikes in the near term are highly unlikely. There is.

In that formula statementpublished Nov. 1 at 2 p.m., the Fed said:

“In determining the degree of additional policy tightening that may be appropriate to return inflation to 2% over time, the Committee shall consider the cumulative tightening of monetary policy, the lag in which monetary policy affects economic activity, and the , which takes inflation into account.

The stock market reacted jubilantly to the Fed’s decision, with the S&P 500 index rising 1% during Powell’s remarks. The Dow Jones Industrial Average rose 0.7% and the Nasdaq Composite Index rose 1.3%.

conclusion

The statement essentially echoed Powell’s point that the Fed doesn’t yet know how well its anti-inflation policies are working or how long it will take for their full effects to be felt. is repeated. They may not take any further action until they do, which will most likely be in 2024.

Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.