United States: Fed keeps rates unchanged in November
At the meeting ending on 1 November, the Federal Open Market Committee (FOMC) left the target range for the federal funds rate at 5.25%–5.50% for the second straight meeting.
The decision was driven by the desire to assess the impact of past rate hikes, which total 525 basis points since early 2022. Moreover, both headline and core inflation have come down sharply so far this year, while the recent rise in bond yields has tightened financial conditions and reduced the urgency to continue hiking.
The Fed continued to suggest that it might hike rates ahead, though most panelists judge that the Fed is done with hiking and only a few panelists see one final 25 basis-point rate increase later this year. Expected slowdowns in inflation and economic activity in the coming months should support the Fed’s decision to remain on hold. Our Consensus is then for monetary policy easing in 2024, with rates seen ending the year about 100 basis points below their end-2023 level. That said, the risks to our Consensus are likely skewed to the upside in light of surprisingly robust economic activity in recent months, which if it persists could translate into stronger price pressures.
On the latest meeting and outlook, Nomura analysts said: “In our view, the Fed are uncertain about the medium-term path for policy, but are content to remain in ‘wait-and-see’ mode for now. The dovish statement and press conference supports our expectation of no more rate hikes while uncertainty for the medium term monetary policy outlook remains.” In contrast, TD Economics’ James Orlando was more hawkish: “GDP posted a 4.9% quarter-on-quarter gain in Q3, retail sales have been surging, and wage growth has been rising at a pace well above the level necessary to bring inflation back to the 2% target […] While Chair Powell has been evenhanded in his statements about whether the Fed needs to hike again, the strength of the economy has opened the door for another rate hike. And we believe that the Fed would be right to walk through it.”