OCTOBER 23, 2023 – PLEASED WITH INFLATION DATA, FED SAYS NO RATE HIKE THIS WEEK
Fed Chair Jerome Powell stated last week it is unlikely rates will move again in 2023. He is pleased with the direction of inflation growth as higher rates work their way through the economy. As such, the Fed will hold short-term rates steady at the upcoming Fed meeting on October 31–November 1.
A recent run-up in long-term rates could work to slow the economy, precluding the need for another rate hike. Powell addressed this by saying, “We have to let it play out and watch it, but for now it is clearly a tightening in financial conditions.” Raising interest rates is to “affect financial conditions, and higher bond rates are producing tighter financial conditions right now.”
A strong economy is making it difficult for the Fed to stop rate hikes; recent strong employment reports and retail sales reports are indicating resilience. Wage growth, however, has been slowing, more in line with Fed targets. The pundits seem to believe a recession has been avoided, with a Wall Street Journal poll showing a less than 50 percent chance of a significant downturn in the next year, and 82 percent of economists feel current Fed rates are restrictive enough to bring inflation back to 2 percent over the next two to three years. Rates are not expected to start coming down before the second quarter of 2024.