The US financial authorities are likely to decide to keep interest rates unchanged for the third consecutive time at the Federal Open Market Committee (FOMC) meeting, which will be held for two days until the 13th. On the other hand, market expectations that the government will cut interest rates as early as March next year are expected to be thrown cold water on.
The FOMC is expected to keep the target range for the federal funds rate unchanged at 5.25-5.5%, the highest level in 22 years. The statement and quarterly economic forecast will be released at 2:00 pm ET (4:00 am Japan time on the 14th), and Federal Reserve Chairman Jerome Powell will hold a press conference at 2:30 pm.
Chairman Powell has said it is too early to speculate on when the Fed will start cutting interest rates. Rather, officials have emphasized that they would like to pause interest rate hikes and assess the effects of monetary tightening to date on the economy.
Wall Street Agrees Fed to Pause for Third Straight Meeting
There’s a unanimous view among the bigger firms on the outcome
Source: Bloomberg News
“I think the message from the Fed will be, ‘There’s no easing too quickly,'” Lindsay Piegza, chief economist at Steful Financial, said of the Fed. “We’ve made progress, but more progress is needed,” he said, noting that authorities have been disappointed by progress in slowing inflation.
economic forecast
The quarterly economic forecast’s interest rate forecast distribution map (dot plot) is expected to show how much interest rate cuts officials expect in both 2024 and 2025, and is likely to attract attention on Wall Street.
A Bloomberg survey of economists found that the median rate is expected to be cut twice in 2024 and five times in 2025, but uncertainty remains high. Some Fed watchers are predicting a total rate cut of 1 percentage point in 2024, while others are predicting no rate cut in 2024.
FOMC May Project Modest Interest Rate Cuts in 2024
Fed forecasts may show slower growth, less inflation next year
Source: Bloomberg News survey of economists December 1-6
FOMC participants may also revise their inflation expectations. The expected rate of increase in the personal consumption expenditure (PCE) composite price index in 2023 is 3.1%.Previous prediction for SeptemberEconomists now expect the core index, which excludes volatile energy and food, to rise by 3.5%, down from 3.7% in the previous forecast.
“Two consecutive interest rate holds can be considered a pause, but a third in a row could signal the end of the tightening cycle,” said Anna Wong, chief U.S. economist at Bloomberg Economics. “Authorities are likely to consider the conditions for starting interest rate cuts next year.”
In addition, in response to the extremely strong growth in real GDP (gross domestic product) in the third quarter (July-September), FOMC participants revised upward their forecast for GDP growth in 2023, while Economists don’t think there will be any revisions.
FOMC Statement
About three-quarters of economists expect the FOMC to maintain its current guidance, leaving the possibility of another rate hike open. Meanwhile, nearly 25% of economists think the FOMC will adjust its statement to reflect the possibility that the federal funds rate target has peaked with the July rate hike.
FOMC Expected to Keep Hawkish Lean in Statement
About a quarter of economists expect a more dovish missive
Source: Bloomberg News survey Dec. 1-6
Hugh Johnson, chairman of Hugh Johnson Economics, said he expects there will be minimal revisions to the statement. “Officials are likely to stress there are no imminent plans for rate cuts,” he said, adding that any changes would depend on data.
Press conference
In a press conference after the FOMC meeting, Chairman Powell is likely to repeat the view he expressed earlier this month at an event at Atlanta’s Spelman College, saying it is too early to speculate about the timing of monetary easing.
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Fed Director Waller, one of the most hawkish leaders in the FOMC, has admitted that he is prepared to consider lowering interest rates if inflation continues to slow, and the chairman will be asked by reporters whether he agrees with this. there is a possibility. Questions are also expected to be asked about his views on the financial situation, such as the recent sharp drop in US bond yields.
“We expect Powell to maintain a somewhat hawkish tone,” said Stephanie Ross, chief economist at Wolf Research. “He hasn’t changed his tone as much as Waller and others, and financial conditions have changed over the past few weeks. “The situation has eased markedly,” he said.
Original title:Fed Not Ready to Signal Near-Term Rate Cuts: Decision-Day Guide(excerpt)
2023-12-13 05:04:19
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