Fed Holds Steady on Interest Rates, Eyes Potential December Hike

In its latest monetary policy meeting, the US Federal Reserve (Fed) has decided to keep the federal funds rate steady at a range of 5.25% to 5.50%. This decision aligns with the Fed’s goals of achieving maximum employment and maintaining a long-term inflation target of 2%. This announcement follows the penultimate meeting of the Federal Open Market Committee (FOMC) for 2023, which was chaired by Jerome Powell.

The FOMC observed strong economic growth in the third quarter, although job gains have slowed compared to earlier in the year. The committee reaffirmed the resilience of the US banking system while expressing concerns over the potential effects of tightened financial and credit conditions on economic activity, hiring, and inflation. They referred to September’s inflation rate of 3.7% as “elevated.”

Despite the implementation of a restrictive monetary policy, Powell cast doubt on its effectiveness in addressing high inflation. The Bloomberg World Interest Rate Probability (WIRP) indicates there is currently no expectation for a rate increase in November, but there is a 24% chance of a hike in December. An additional increase of 25 basis points is still considered feasible, with no further hikes expected beyond the end of 2023.

In the context of these developments, the bond market is perceived as supportive of the Fed’s stance, with yields increasing significantly at the longer end of the curve. The FOMC continues to evaluate information that influences monetary policy, including the impact of cumulative policy tightening and other economic and financial changes.

As part of its policy strategy, the committee directed the Open Market Desk at the Federal Reserve Bank of New York to carry out transactions in the System Open Market Account and conduct standing overnight repurchase and reverse repurchase agreement operations. The committee also authorized rollovers of Treasury coupon securities at auction and smaller adjustments for reinvestments as necessary.

Additionally, the FOMC has reduced its holdings of Treasury securities, agency debt, and agency mortgage-backed securities (MBS). It has established caps for Treasury securities at $60 billion per month and for agency MBS at $35 billion per month, along with authorizing dollar roll and coupon swap transactions as needed.

This article was generated with AI assistance and reviewed by an editor.