The Federal Reserve is expected to hold interest rates steady at its next interest rate announcement at 2pm ET on September 20. However, the upcoming meeting should offer clues on a potential interest rate increase at the Fed’s subsequent November decision. Interest rate futures give a slim chance of a September interest rate hike, and the Fed typically doesn’t like to surprise markets.
However, the chance of an interest rate hike at the conclusion of the Fed’s subsequent meeting, on November 1, is a little under 1 in 3, suggesting an interest rate hike is still possible, according to the CME’s FedWatch Tool.
Both incoming economic data, such as this month’s CPI inflation report, and the Fed’s upcoming disclosures will help signal the likelihood of a November interest rate move. Of course, an interest rate hike at the December meeting is possible. Still, the perception of markets. is that if another 2023 interest rate hike is coming, it will very likely occur be November.
Summary Of Economic Projections
On September 20, Fed policy makers will disclose their short-term interest rate forecasts for the end of 2023. Given there are only two meetings remaining after the September, that will give strong clues on a November interest rate move.
The most recent disclosure of the Fed’s projections from June, suggested many saw rates moving one notch above their current level in 2023. The minutes from the Fed’s July meeting also broadly supported this view. However, since then economic data has suggested softening inflation and some signs of slowing jobs growth. Both things the Fed was hoping to see in bringing down inflation.
As such markets will want to see whether policy makers still believe that another hike is coming. So far the Fed has expressed a degree of skepticism concerning improving inflation data, but that position may change.
Economic Data
Both markets and the Fed would agree that we are close to the top of this interest rate cycle. The Fed thinks another interest rate hike or two could be needed, depending on incoming economic data as Fed Chair Powell outlined in his recent Jackson Hole speech. The markets are less convinced. Recently, we’ve seen some signs of disinflation in recent CPI releases and some early signals that the jobs market is cooling. Both of these are largely what the Fed wants, though the limited run of improving data and the chance of home prices rebounding further remain concerns in the Fed’s inflation fight.
The Fed’s September meeting appears likely to hold interest rates steady, but the meeting will provide further information on the outcome of the November decision, where an interest rate increase remains possible.
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