The U.S. central bank, the Federal Reserve (Fed), kept the benchmark interest rate unchanged as expected, while indicating the possibility of one more rate hike within the year on the dot plot. In particular, it raised its interest rate forecasts for the end of next year and the year after, signaling that higher rates may persist for a longer period.
On the 20th (local time), the Fed announced after the September Federal Open Market Committee (FOMC) regular meeting that it would maintain the federal funds rate at 5.25?5.5%.
The FOMC stated, "Recent indicators suggest that economic activity is expanding at a solid pace," adding, "Job gains have slowed in recent months but remain strong. Inflation is still rising." It also confirmed, "We will continue to assess incoming information and the effects of monetary policy," and "When determining the appropriate range of additional policy firming to return inflation to the 2% target, we will consider the cumulative tightening of monetary policy, the lagged effects of monetary policy on economic activity and inflation, and economic and financial developments."
There were no major changes in the policy statement released that day, but some wording was slightly adjusted. The economic assessment changed the term "moderate" to "solid," confirming that the U.S. economy is stronger than expected. Regarding job growth, the statement included the word "slowed," reflecting the impact of cumulative tightening on the labor market. The statement did not include any hints of an imminent end to tightening that the market had anticipated. The phrase "additional policy firming" was also retained.
The newly released dot plot kept the median year-end interest rate forecast for this year at 5.6%. However, the median rate forecast for 2024 was raised from 4.6% to 5.1%, and the median rate for the end of 2025 was increased from 3.4% to 3.9%. The median rate for the end of 2026 was shown as 2.9%. This suggests that two rate cuts are expected next year. It also indicates that even after the Fed’s tightening cycle ends, high interest rates will persist for an extended period. Inflation is projected at 3.3% this year, and gross domestic product (GDP) growth is expected to be 2.1%.
The market is now awaiting the press conference of Fed Chair Jerome Powell. Powell is expected to state during the press conference, which begins at 2:30 p.m. Eastern Time, that additional rate hikes remain possible if necessary.
The New York stock market is showing mixed trends. The Nasdaq index, which is tech-heavy, extended its losses, and the S&P 500 index turned negative. The dollar index, which had been weak, rebounded to around the 105 level.
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