{"id":3647,"date":"2023-09-25T15:12:06","date_gmt":"2023-09-25T07:12:06","guid":{"rendered":"https:\/\/www.syfe.com\/hk\/magazine\/?p=3647"},"modified":"2023-09-25T15:12:08","modified_gmt":"2023-09-25T07:12:08","slug":"making-sense-of-the-september-fomc-meeting","status":"publish","type":"post","link":"https:\/\/www.syfe.com\/hk\/magazine\/making-sense-of-the-september-fomc-meeting\/","title":{"rendered":"Making Sense of the September FOMC Meeting"},"content":{"rendered":"\n
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The Federal Reserve Open Market Committee (FOMC) meeting was among the most eagerly anticipated events for investors in September. At the meeting, the Fed announced its decision to maintain the current interest rates. However, it also hinted at a potential rate hike before the year\u2019s end. Let us delve deeper into the details of the FOMC meeting and its potential implications.<\/p>\n\n\n\n

Why did the market drop even when the Fed paused?<\/h2>\n\n\n\n

Markets had knee-jerk reactions after the Fed\u2019s announcement. The primary reason is that the Fed\u2019s forward guidance was more \u201chawkish\u201d than expected. <\/strong>Prior to the meeting, the consensus among analysts was a forecasted 100 bps cut in the Fed\u2019s policy rates for 2024. Though the Federal Reserve still envisions a decline in policy rates in the future, the pace could be slower than initially expected. The September meeting\u2019s dot plot signalled an inclination towards a more conservative 50 bps reduction. <\/strong>Markets reacted negatively to reprice the newly set expectations. <\/p>\n\n\n\n

It is not entirely negative though<\/h2>\n\n\n\n

Reading between the lines of the FOMC statement, it is not entirely negative. In fact, the Fed revised its economic outlook upward.<\/strong> The September FOMC meeting came with fresh economic projections: the Fed raised its GDP forecast for 2023 to 2.1% from an earlier 1% and improved its 2024 outlook to 1.5% from the 1.1% projected in June. Concurrently, expectations for the unemployment rate were also adjusted favourably throughout the forecast period. Chair Powell said soft landing<\/strong> was not his base case, but he does think it is possible<\/strong>, and the Fed will move carefully to try to achieve it.<\/p>\n\n\n\n

What is our interest rate outlook? <\/h2>\n\n\n\n

In our opinion, the November rate hike could be possible, but is not set in stone yet. As Chair Powell hinted during the September FOMC press conference, saying, \u201cWe\u2019re fairly close, we think, to where we need to get,\u201d it is very likely that the hiking cycle is nearing its conclusion.<\/p>\n\n\n\n

In the longer-term outlook for 2024 and 2025, interest rates are still anticipated to trend downwards. The dot plot, which displays the projections of Fed officials on interest rates, indicates a decrease in the policy rate from 5.6% in 2023 to 5.1% in 2024, with a further reduction to 3.9% by the close of 2025<\/strong>. Most analysts now expect the first Fed rate cut to start in the second half of 2024<\/strong>. <\/p>\n\n\n\n

Fed\u2019s dot plot indicates that policy rates to be lower in 2024 and 2025<\/strong><\/p>\n\n\n\n

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Source: FOMC statement, 20 September 2023<\/figcaption><\/figure>\n\n\n\n

What do \u201chigher for longer\u201d rates mean for your investments? <\/h2>\n\n\n\n