Fed chairman Jerome Powell’s news conference is displayed on the floor at the New York Stock … [+]
The Federal Reserve has three scheduled meetings remaining in 2023. Of these, November’s is likely to be the most significant and may see an interest rate increase. Markets currently anticipate that the September and December meetings will hold rates steady.
The Meeting Schedule
The remaining Federal Reserve decisions on interest rates for 2023 will be announced on September 20, November 1 and December 13, with each decision announced at 2 pm ET at the end of a two-day meeting of Fed officials. Each meeting will be followed by a press conference from Jerome Powell 30 minutes after the rate announcement.
The September and December meetings will also include release of the Fed’s economic projections, including projections for interest rates. In addition, 3 weeks after each meeting, the meeting minutes will be released.
The Economic Picture
The Fed targets controlling inflation and maintaining full employment. Since 2021 the primary focus has been on bringing down surging inflation, while the job market has generally held up well. Now, with CPI inflation running at a 3.7% headline annual rate for August 2023 and the jobs market showing some early signs of softness on August data, there’s more of a balance between the Fed’s two main objectives.
The Fed wants to make sure excessive inflation is gone. The Fed also wants to avoid the risk of a job-destroying recession. For now, the Fed’s comments have overwhelming stressed the need to tame inflation, but if the jobs market weakens as inflation cools, then that emphasis could shift.
The Market’s View
The market’s take, for now according to the CME FedWatch Tool is that the Fed’s September and December meetings will almost certainly hold interest rates steady.
However, the Fed’s November meeting could result in an interest rate increase. The market currently puts the chance of a November hike at just under 40%. Over the coming weeks comments from Fed officials and incoming economic data will help inform likely outcomes for the November meeting where an interest rate hike could occur. Signs that inflation isn’t cooling, could produce a rate increase. That’s more likely if the job market holds up well on incoming data.
The Fed’s Take
The most recent statements from Fed officials have generally discussed patience, risk management and data dependence in managing monetary policy with interest rates already at high levels.
The most recent Fed projections from June did signal that a second interest rate increase was likely in late 2023. However, a lot of data has come in since June, and on September 20 those projections will be updated. It appears some policymakers may be less committed to another 2023 hike if recent comments are any guide. As such the Fed may be on the same page as markets with another 2023 rate hike possible but not certain, depending on incoming economic data.
The Data To Watch
The key data to watch will be inflation reports. Within these, the Fed is looking for services prices too cool and for housing prices to moderate. Energy prices are generally increasing currently, which could drive up headline inflation numbers further, but so far the Fed may be willing to look through more volatile energy prices.
Unemployment data will be important too, the Fed believes the labor market was running fairly hot since 2021, so some degree of moderation will be well received by the Fed as a way to help cool inflation. However, not so much that the U.S. economy tips into a recession.
What To Expect
We’re likely very close to the top of this interest rate cycle. However, if upcoming economic data doesn’t reassure the Fed that inflation is coming back to its 2% goal, then the Fed may start to hint that another 2023 interest rate increase is coming, probably in November. That might be the last rate increase of this cycle, or maybe the last increase already happened in July if incoming economic data is more favorable.
