FOMC Update
September 20, 2023
As expected, the FOMC did not change its benchmark rate range from 5.25%-5.50%. The Fed maintained its projections for one more 25bp hike this year, however lowered its rate cuts from 1.00% to 0.50% for 2024, which implies rates are higher for longer. The 2026 projected rate is 2.9% vs the 2.5% longer run rate, GDP outlook increased to 1.5% from 1.1% for 2024, and core inflation moved down 0.2% to 3.7% for 2023. Rates and Market:
- Fed Funds Target: 5.25%-5.50%
- Market Reaction: The release was viewed as a hawkish pause; S&P 500 was little changed; US Treasury yields initially jumped, then 2-year UST settled up 4bp and 10-year UST unchanged from the announcement; The market is pricing a 39% likelihood of an additional quarter-point increase in the fed funds target by year-end
The FOMC announced the following actions and analysis:
- Unanimous policy vote
- The Fed noted that economic activity is ‘expanding at a solid pace’ vs ‘moderate’ in previous statements
- In addition, the Fed noted that job gains ‘have slowed in recent months but remain strong’ vs ‘robust’
- The committee will continue to reduce the balance sheet by $95B each month as previously stated