FOMC Meeting: Key Takeaways

September FOMC meeting | September 20, 2023

The Federal Open Market Committee (FOMC or the Committee) kept the federal funds rate unchanged at 5.25% – 5.50%. The FOMC stated that it “will continue to assess additional information and its implications for monetary policy”. The Federal Reserve (Fed) continues reducing its holdings of U.S. Treasury securities, agency debt, and agency mortgage-backed securities.

Topic	Details
Stated Reasons	Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation, however, remains elevated. The FOMC believes the U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.
Looking Forward	The FOMC statement confirms that the Committee will continue to take into account the cumulative tightening of monetary policy, the lags with which monetary policy may affect economic activity and inflation, and economic and financial developments in its decisions at each meeting. However, the bias is to the upside as the latest federal funds target range projections from the FOMC imply that policymakers expect an additional rate hike this year, with the median terminal rate peaking around 5.6% (same as in June). Also, the expectation is for rates to remain higher for longer, as policymakers removed some of the rate cuts that were implied in the June announcement, now finishing 2024 at a median rate of 5.1%. In the past five Fed tightening cycles since 1990, long-term U.S. Treasury yields have peaked before the end of the tightening cycle but did not begin a clear declining trend until the tightening cycle was over.
What Else?	We think the market is still priced for a too-optimistic outcome regarding future Fed rate cuts. As the dis-inflation base effect wears off, we think it will prove difficult for inflation to move to the Fed’s 2.0% inflation target. The statement does make it clear that the FOMC is prepared to adjust policy as appropriate if risks emerge that impede the attainment of its goals. The FOMC raised its gross domestic product growth forecast for 2023 and 2024, bolstering its view of being able to accomplish a soft landing. Given our expectation that the federal funds rate will remain elevated thru 2024, we continue to position portfolios defensively. We see asymmetric risk to the downside in risk markets. We believe fixed-income investors may want to consider implementing a barbell strategy by investing into the long and short end of the curve.
Upcoming Meeting Schedule	November 1 | December 13* | January 31 | March 20* *Indicates the meeting is associated with a summary of economic projections. In addition, every meeting will be accompanied by a press conference.

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