The Fed Pauses Rate Hikes. For Now

The Federal Reserve’s pause on interest rate hikes in the September meeting of the Federal Open Market Committee, wasn’t a surprise. Inflation has continued to subside, labor has cooled, and supply chains continue to improve.

But the economy still has been “expanding at a solid pace,” the FOMC comments noted. “Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.”

The note continued, “Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”

And then, the big observation that the “extent of these effects remains uncertain.”

“It was no real surprise that the Fed left rates unchanged today,” Marty Green, principal of Polunsky Beitel Green noted in emailed remarks to GlobeSt.com. “The overall data continues to point to an accelerating slowdown, but also continues to be mixed because of some lagging indicators. With rates elevated into restrictive territory, I expect the Fed to be patient and hold off on any additional increases until it becomes clearer that an additional rate hike is warranted.”

That would go with the Fed’s statement about continuing to monitor additional data as it comes in and being ready to “adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

In other words, while things seem to be calmer, there is nothing coming from the Fed to suggest that actions are done. Energy is shooting up and getting closer to $100 a barrel for oil. Consumers have a glummer estimate as where the future is taking them. Credit card debt is at historical highs, finally crossing the $1 trillion mark.

“The forward guidance from the FOMC’s policy statement and its updated macro and interest rate forecasts indicates an ongoing hawkish policy stance and a higher-for-longer rate path,” said Nationwide Chief Economist Kathy Bostjancic in emailed remarks. “The reason is that inflation remains elevated and should continue to retreat only gradually.”

But there was other good news. “As expected, the Federal Reserve made no change to their benchmark rate,” said John Lynch, chief investment officer for Comerica Wealth Management, in emailed remarks.  “However, the forecasts for economic growth increased, while inflation expectations declined.  Most important, policymakers reduced the number of anticipated rates cuts next year, from four to two, resulting in a fed funds projection of 5.1% for the end of 2024.”