The Fed: See you (and a pause) in September?
Another rate hike from the Federal Reserve is all but baked in for next week's FOMC meeting. But what about after that? Will Jerome Powell sound more dovish than hawkish?
There’s no mystery about what the Federal Reserve is going to do next week. A rate hike is all but guaranteed according to fed fund futures on the CME. There’s a better chance of both Barbie and Oppenheimer flopping at the box office this weekend then there is of the Fed holding steady again. Not gonna happen. Rates are going up a quarter of a point to a range of 5.25% to 5.5%.
But what happens after that?
The next FOMC meeting isn’t until September 20. That means there will be a LOT more data coming out about inflation, the job market and the rest of the economy over that nearly two month period. Pricing pressures are staring to ease. That’s a good sign. But will the Fed finally slam the brake on rate hikes for the rest of 2023?
That’s not yet clear.
Sure, the market is pricing in an 84% chance that the Fed will hold steady in September. But the 16% odds of another 25 basis point increase at that meeting isn’t completely insignificant.
What’s more, the market is no longer expecting a rate cut at any point in 2023. Hopes for easing have been pushed out until early 2024. It appears that investors are now taking Fed chair Jerome Powell and other Fed officials at their word when they talk about how lower rates aren’t being considered just yet.
That makes sense. The job market is still healthy. Unemployment claims fell again this week and there continues to be little evidence that some of the big layoffs in tech, the media and other services-y parts of the economy are part of a broader more disturbing trend in the labor market.
There are no economic projections or dot plots coming Wednesday. So investors will have to pay even closer attention than usual to what Powell says in the press conference Wednesday. Will he continue to sound hawkish about inflation or flap some dove wings and hint that the Fed might finally be done raising rates? Whether the 2023 bull market keeps raging or not may depend on which bird of a feather is flocking together on the FOMC.