A Fed Pause (Again)... Inflation Remains Key

September 21, 2023

• The Fed held interest rates at 5.25%-5.5% at yesterday's FOMC meeting. The decision was unanimous, and the Fed statement repeated many of the same messages from the previous meeting.
• The FOMC statement noted “economic activity has been expanding at a solid pace” likely reflecting the forecast upgrade for U.S. real GDP growth this year. The Fed plans on keeping rates in restrictive territory, given this resilience.
• Another rate hike remained in the Fed’s dot-plot median forecast for 2023, but this seemed more like an attempt to keep options open rather than give firm guidance.
• Chair Powell noted in his press conference that labor demand still exceeds labor supply – though progress is being made. Powell is still guarding against backing off too soon. The “stop and go” policy of the 1970s needs to be avoided.
• Bottom line: without confidence in their future inflation forecasts, the FOMC seems to want some insurance that the anchor will hold. That likely (still) requires future U.S. growth falling below trend – for some time. The bigger mistake would be losing price stability now. We continue to watch interest-rate-sensitive sectors like housing for indications of policy transmission.

Source: Don Rissmiller, Strategas