Commenting on this yesterday’s decision by the FOMC to hold interest rates, Salman Ahmed, Global Head of Macro & Strategic Asset at Fidelity International said:
“As expected, the FOMC decided to not raise rates at its September meeting and retained the hawkish formulation of its forward guidance by retaining the statement that “additional policy firming […] may be appropriate.”
“Much more significantly, however, were the moves in the Summary of Economic Projections (SEP), which showed that the committee’s expectations for where interest rates will go in 2024 rose from 4.6% at the June meeting, to 5.1% today. Taken together with their updated expectations for core inflation in 2024, which held steady at 2.6%, brings the committees expectation for where real rates will land in 2024 up by 50bps to 2.5%.
“This, combined with the fact that 12 out of 19 participants still believe one more hike is warranted, is indicative of a FOMC that is still very much in hawkish mode.
“At the press conference, Powell underlined the hawkishness of the committee’s projections, whilst retaining maximum optionality to let the data dictate where they go next. He stressed that the committee is waiting to be convinced that inflation is sustainably down, whilst noting that they “need to be confident that we are at an appropriately restrictive stance“. This aligns with our view that the focus of the committee is shifting from emphasising ‘higher’ to ‘longer’, and corroborates our view that the hurdle for pivoting is still very high.”