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Federal Reserve policymakers on Wednesday voted to keep short-term interest rates at levels not seen since July, but with one more rate hike before the end of the year and no interest rate in 2024. The company indicated that it is expected to maintain high levels for a longer period of time.
Federal Open Market Committee voted unanimously The short-term federal funds rate target remains unchanged at 5.25-5.5%, as expected. But a new “dot plot” mapping each committee member’s future expectations shows most think the Fed will need to raise rates again to rein in inflation.
In a briefing to reporters after the vote, Federal Reserve Chairman Jerome Powell prefaced his usual comments on the possibility of further interest rate hikes, saying that the decision will depend on “more data as it becomes available and how it affects economic activity and inflation.” He stressed that it would depend on the impact on the outlook.
“Given the progress we’ve made to date, we are in a position to proceed with caution, evaluating future data, evolving prospects and risks,” Powell said of the recent economic downturn. “However, we are mindful of the inherent uncertainties in determining precisely our policy stance. We intend to maintain policy at a suppressive level until we are confident that we are seeing a sustained decline towards this goal.
Raise interest rates to combat inflation
The Fed last raised interest rates in July, raising the short-term federal funds rate to its highest level since 2001. However, the Fed had previously raised interest rates by up to 75 basis points at a time in 2022, and has approved a smaller rate hike of 4 basis points this year. 25 basis point increases in February, March, May and July.
The latest dot plot is Economic forecast overview The report, released Wednesday, found that 12 of 19 Fed policymakers expect to raise the federal funds rate by an additional 25 basis points by the end of the year. The Fed is scheduled to meet two more times this year, so another rate hike could happen on Nov. 1 or Dec. 13.
However, Chairman Powell emphasized that the Summary of Economic Projections (SEP) is “not a plan that will actually be negotiated or discussed as a plan,” adding, “It is an accumulation of individual forecasts by 19 people, and is presented here. What is calculated is the median value.” ”
“If you look at the SEP…you’ll see that a majority of participants think it’s likely appropriate to raise rates one more time in the two remaining meetings this year,” Powell said. Stated. “Some believe we are already there. [the appropriate level for rates]so that’s not what we’re making the decision about… just [maintaining] rate and [awaiting further] data. “
The dot plot is not a plan, but reflects that “economic activity was stronger than we expected and stronger than anyone expected,” he said.
Although the Fed directly controls short-term interest rates, long-term interest rates on mortgages and government debt are determined primarily by market forces.in Implementation notesthe Fed announced it would continue the “quantitative tightening” it began last summer, removing $35 billion in mortgage-backed securities and $60 billion in U.S. Treasuries from its balance sheet each month.
10 year government bond yieldMortgage rates, often used to predict where they will go next, were little changed Wednesday as investors in the bond market looked ahead to next year, when the Fed is expected to start lowering short-term interest rates.
The latest dotplot shows that Fed policymakers envision cutting short-term interest rates by 0.5 percentage point next year, compared to guidance released in June of a full cut in 2024.
ian shepherdson
“This is a hawkish hold and signals a long-term high, but the Fed’s intent today is not a series of commitments,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients. ” he said. “They will react to the data. Our view on the data is that core inflation will fall faster than they expected and the labor market will ease further than they expected.”
Pantheon Macroeconomics expects the Fed to cut short-term interest rates by 150 basis points, or 1.5 percentage points, next year. This is three times the decline shown in the dot plot.
Pantheon forecasters are looking at three potential wildcards for the economy. United Auto Workers strike In addition to targeting three major U.S. automakers, federal student loan payments will resume in October. government shutdown.
Futures market expects interest rates to fall next year

Probability of target interest rate for December 18, 2024 Federal Reserve meeting. sauce: CME FedWatch Tools.
Futures markets tracked by the CME FedWatch tool predict a 79% chance that the Fed will cut rates by the end of next year, but a 53% chance that rates will be cut by more than 0.5 percentage point by December. Stay in.
In forecasts released this week, economists from Fannie Mae and the Mortgage Bankers Association agreed that mortgage rates are likely to fall next year, but differed on how much.
Mortgage interest rates are expected to ease next year

sauce: fannie mae, Mortgage Bankers Association prediction.
In a forecast released Monday, Fannie Mae forecasters said they expect interest rates on 30-year fixed-rate loans to fall to 6.3% by the fourth quarter of 2024. MBA economists expect interest rates to fall more sharply, averaging 5.4% by the end of next year. Year.
MBA Chief Economist Mike said: “We expect inflation to remain close to the Fed’s target, the job market to continue to slow, and mortgage rates to reflect Fed moves in 2024 to be lower rather than higher.” It should start,” he said. Fratantoni said after Wednesday’s Fed vote. “This should provide some reassurance in terms of affordability for potential homebuyers.”
Fratantoni said a lack of housing inventory continues to be the biggest challenge for many prospective buyers.

Mike Fratantoni
“While homebuilder sentiment has clearly been affected by the recent spike in mortgage rates, single-family home permits provide a positive outlook for the pace of construction in the year ahead,” Fratantoni said. “If mortgage rates trend downward in 2024, as we expect, the combination of more home sales and slightly lower interest rates should support increased purchase volumes.”
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