As widely expected, the Fed left the federal funds rate unchanged at 5.25%-5.50% at the November Federal Open Market Committee (FOMC) meeting yesterday.
Inflation by the Fed's preferred gauge was 3.4% (PCE and not CPI) in September, down by more than half from last summer's peak but still well above the U.S. central bank's 2% goal.
Positively, Chairperson, Jerome Powell, noted that a recession in the United States is off their agenda. The combination of economic resilience and moderating inflation has given officials hope that they might be able to slow growth gradually and relatively painlessly in a rare “soft landing.” The labor market added 266,000 jobs in September and Real GDP growth more than doubled in the third quarter of 2023 to 4.9% annualized.
At the Fed’s previous meeting in September, policymakers had forecast that one more quarter-point increase in rates would probably be appropriate before the end of 2023. But officials did not release updated economic projections yesterday — they are scheduled to do so after the Fed’s Dec. 12-13 meeting. Powell confirmed that the Committee is still very much focused on whether monetary policy is sufficiently restrictive to bring inflation down to 2% in a sustainable manner, and that the next question would be for how long. He stressed that the Committee is “not thinking about rate cuts right now at all.”
There are four more important economic prints between now and the December meeting that will determine if one more quarter-point increase in rates is justified.