"We need to see more progress." Jerome Powell, Chair of the U.S. Federal Reserve (Fed), which kept the benchmark interest rate unchanged, signaled that one more rate hike could follow within this year. By raising the year-end rate forecast on the dot plot to 5.1%, he also hinted at a 'prolonged period of high interest rates.' Having mentioned 'uncertainty' and 'cautious progress' several times, he emphasized that if the U.S. economy shows stronger-than-expected performance, the Fed's response will also become more forceful.
At a press conference following the September Federal Open Market Committee (FOMC) meeting on the 20th (local time), Chair Powell stated, "We want to see convincing evidence that we have reached an appropriate level." He explained, "Inflation has eased, but there is still a long way to go to reach the 2% target," adding, "(The effects of the Fed's monetary policy) are moving in the desired direction but are not yet complete. We will proceed cautiously."
At this meeting, the Fed kept the federal funds rate unchanged at 5.25?5.5%, as the market had anticipated. However, the Fed made it clear in the policy statement and Powell's press conference that the rate hike cycle is not over yet. The policy statement released that day retained the phrase 'additional policy firming.' By changing the economic assessment from 'moderate' to 'solid,' it also confirmed that the U.S. economy is performing stronger than expected.
Powell explained, "If necessary, we could raise rates once more at one of the remaining two meetings this year," adding, "The majority opinion of the FOMC is to raise rates one more time." At this meeting, seven FOMC members expressed the view that no more rate hikes are needed this year, while twelve members supported one more hike. He reiterated, "I think we are close to the terminal rate," and "Everyone is waiting for data. We will proceed cautiously."
Since a rate hold was widely expected at this meeting, the market's focus was on the newly released dot plot and Summary of Economic Projections (SEP), as well as Powell's remarks. The Fed maintained the median year-end rate forecast for this year at 5.6%, unchanged from the previous projection. However, the median rate forecast for the end of 2024 was raised from 4.6% to 5.1%, and the median for the end of 2025 was increased from 3.4% to 3.9%. This indicates that even when the Fed begins to cut rates, a higher level of interest rates will persist for a longer period than previously expected. The expected rate cut in 2024 was also reduced to 0.5 percentage points from earlier projections. Along with this, the Fed raised its year-end forecast for the Personal Consumption Expenditures (PCE) inflation rate from 3.2% to 3.3%, and the Gross Domestic Product (GDP) growth forecast from 1.0% to 2.1%.
Powell said, "A soft landing is not the baseline but a key goal. It is what we have been striving to achieve," but added, "The worst outcome for us would be failing to restore price stability." He expressed concern, saying, "In that case, inflation would reemerge, economic uncertainty would persist for a long time, and growth would be affected. It could be a miserable period of continuous tightening due to endless inflation." This message reflects a determination not to repeat past mistakes of prematurely halting tightening, which led to a resurgence of inflation. Powell's recent emphasis on cautious progress in official appearances is understood in this context.
When asked whether additional tightening would be implemented if GDP data turned out stronger, Powell responded, "Our mandate is price stability and employment, not GDP," signaling further action. He reaffirmed the message that the Fed will prioritize price stability and continue the fight against inflation even if it negatively impacts the economy. He added, "If GDP heats up, it could also threaten achieving the price stability goal," and said, "We will monitor it closely."
Regarding ongoing uncertainties such as the United Auto Workers strike, the possibility of a federal government shutdown, the resumption of student loan repayments, and high oil prices, Powell expressed concern, saying, "There is a lot of uncertainty." He explained, "The reason we look at core inflation indicators is because of the extreme volatility in energy prices," adding, "We need to assess the macroeconomy by observing how long high oil prices persist." He further noted, "Energy prices can affect purchasing power, so they are very important," warning about the potential impact on inflation expectations and purchasing power if high oil prices continue. When asked about the timing of rate cuts next year, he replied, "I will not specify timing or signals," and said, "It will be decided based on data."
Meanwhile, the New York stock market closed lower across the board as the Fed signaled additional rate hikes. On that day, the Dow Jones Industrial Average fell 0.22% from the previous close. The large-cap S&P 500 index dropped 0.94%, and the tech-heavy Nasdaq index declined 1.53%. Edward Moya, senior market analyst at OANDA, commented, "The U.S. economy is too strong," and assessed, "This rate hike cycle will last much longer than Wall Street wants."
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