La Française: The Fed expected to 'proceed carefully'

La Française: The Fed expected to 'proceed carefully'

31 oktober 2023

Fed
Fed dollar (kreatikar, Pixabay)

As suggested by Federal Reserve (Fed) Chair Powell’s cautious message at the Economic Club of New York on October 19, the Federal Open Market Committee (FOMC) is expected to maintain the federal funds target rate steady at its November meeting. Indeed, fast-soaring long-term interest rates have further tightened financial conditions.

Please find below what we expect:

  • The target range for the Fed’s benchmark rate to remain unchanged at between 5.25% to 5.50% even though the latest economic data reflects robust 3rd quarter activity.
  • Fed Chair Powell will emphasize that given FOMC tightening actions since March 2022 and the rapid rise in long-term Treasury rates since September, the US economy is poised to slow in the coming months. However, Mr. Powell will likely leave the door open to a potential rate increase after November if policymakers see further signs of resilient economic growth.
  • The Fed to pursue its balance sheet reduction plan at $95bn per month.

In summary, Fed Chair Powell’s recent comments, ahead of the current blackout period, echo those of other Fed officials:  rates will have to remain high for an extended period of time until the Fed is confident that inflation will drop down to the 2% target rate. Consequently, we do not expect any surprises. FOMC announcements should have a limited impact on financial markets.

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