français
deutsch
русский
日本らしさ
español
Türkçe
português
o‘zbek
қазақ тілі
кыргызча
тоҷикӣ
हिन्दी
Officials at the federal reserve probably won’t raise the benchmark Fed Funds rate when they meet next week, but they will shed some light on how long today’s high interest rates will be with us.
Key Takeaways
- The Federal Reserve is likely to hold its key interest rate steady when it meets next week.
- Market participants will closely watch the Federal Open Market Committee's fresh round of economic projections, which will hint at how high the Fed may hike the fed funds rate, and when it might begin to cut it.
- Fed officials will review economic data to gauge how much the Fed's rate hikes to this point have slowed the economy, and how fast inflation is coming down.
- The Fed's goal is to reduce inflation, currently running at 3.7% over the year by one measure, down to a 2% annual rate.
The Federal Open Market Committee (FOMC), which sets the central bank’s monetary policy, will meet Wednesday and decide how to proceed in their campaign of anti-inflation interest rate hikes. Fed officials have already signaled they will likely hold the rate steady at this meeting rather than raise it, to see how much its previous 11 rate hikes since March 2022 have hurt the economy, and whether inflation will continue its bumpy descent to the Fed’s goal of an annual 2% rate.
More importantly for markets, the FOMC will release a fresh round of projections indicating where its members think the economy is headed, whether another rate hike is in store, and how long rates will stay at their current 22-year high.
The inflation-fighting hikes to the central bank’s influential fed funds rate have pushed up interest rates for mortgages, credit cards, and all kinds of other loans in an effort to dampen spending and allow supply and demand to rebalance.
High interest rates have been dismal for borrowers, but great for savers, who can reap the highest rates in years on certificates of deposit and other financial instruments. High-interest rates run the risk of slowing the economy down so much it falls into a recession—though that has yet to materialize.
Fed officials have a healthy portion of economic data to chew over in their meeting on Sept. 19 and 20 and some of it is mixed.
Employers have pulled back on job openings, possibly relieving some of the fears that pay raises in a hot job market could lead to a wage-price spiral and out-of-control inflation.
Inflation has generally cooled down in recent months despite an unwelcome surge in gas prices this summer. However, consumer spending, and economic growth along with it, have stayed resilient despite higher borrowing costs for consumer loans, which could put upward pressure on inflation.
“After raising rates in July, we expect the Fed to follow through on strong pre-meeting signals and hold rates steady at the September FOMC meeting,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, wrote in a research note. “That said, with a ‘long way to go’ on disinflation, and lacking clear evidence the economy is slowing as desired, we expect updated projections and Chair (Jerome) Powell's press conference to emphasize the potential for further tightening this year.”
In addition to the projections, Powell will use his post-meeting press conference to signal the Fed’s intentions. Powell, even more so than previous Fed chairs, tends to move markets when he speaks.
“With inflation continuing to run above target and the labor market cooling off only gradually, we expect the Committee to signal further policy tightening is possible if incoming data warrant it,” economists at Wells Fargo Securities wrote in a research note. “This message is likely to be delivered through both the post-meeting statement and Chair's press conference.”