U.S. FOMC Meeting (October 31 – November 1, 2023)

Fed holds rates, door is open for another hike by year-end

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The Federal Reserve Open Market Committee (FOMC) maintained the federal funds rate in the 5.25% to 5.50% range for the second consecutive meeting. It also re-iterated it will continue its balance sheet runoff.

The Fed upgraded its assessment of recent economic strength, stating "recent indicators suggest that economic activity expanded at a strong pace in the third quarter." It continued to characterize inflation as "elevated". It also added financial conditions to its forward looking statement saying that "tighter financial and credit conditions… are likely to weigh on economic activity."

On the future path of policy, the statement maintained its prior language that the Fed is "prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals".

All of the members of the FOMC voted in favor of the decision.

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Today's no hike decision was always expected to be more of a formality, with everyone watching for hints on the likelihood of whether the Fed will follow through on its own projection of another hike by year-end. The statement did acknowledge the re-acceleration in economic growth, but how could it not? GDP posted a 4.9% quarter-on-quarter gain in Q3, retail sales have been surging, and wage growth has been rising at a pace well above the level necessary to bring inflation back to the 2% target. It also acknowledged that tighter financial conditions are likely to weigh on economic activity going forward.

The Fed will have plenty of data to pour over ahead of its next meeting on December 13th, including Friday's highly anticipated jobs report. While Chair Powell has been evenhanded in his statements about whether the Fed needs to hike again, the strength of the economy has opened the door for another rate hike. And we believe that the Fed would be right to walk through it.

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The Fed - October 31-November 1, 2023 FOMC Meeting (federalreserve.gov)