Federal Reserve Meeting, Fed Meeting Outcome, FOMC Statement, Fed interest rates, The Federal Reserve recently announced a temporary pause in its hiking campaign for interest rates in June. However, according to the central bank’s projections released on Wednesday, they anticipate raising interest rates as high as 5.6% before the conclusion of 2023. The Fed’s key borrowing rate was maintained within a target range of 5% to 5.25% during the announcement. However, it was the revelation of the central bank’s projections, known as the dot-plot, that had a significant impact on the markets, causing a decline as investors reacted to the projection of two more rate increases. These increases are contingent upon the Federal Reserve maintaining its current rate-hiking pace, implementing quarter-point increments.
In its monetary policy statement, the Federal Reserve emphasized its commitment to achieving maximum employment and maintaining a 2% inflation rate over the long run. Fed said in a statement ‘consequently, the Committee decided to maintain the target range for the federal funds rate at 5% to 5.25%.’
The Federal Open Market Committee (FOMC) released a statement affirming the soundness and resilience of the U.S. banking system. However, they acknowledged that tighter credit conditions for households and businesses could potentially impact economic activity, hiring, and inflation. The extent of these effects remains uncertain. FOMC statement said ‘the Committee remains highly attentive to inflation risks and strongly committed to returning inflation to its 2% objective.’
The dot plot, which reveals the expectations of the 18 members of the Federal Open Market Committee, provides insight into their projections for interest rates in 2023 and beyond. According to the dot plot, four members anticipate one more rate increase this year, while nine expect two. Additionally, two members project a third rate hike, and one member foresees four more increases. However, only two members signaled that they do not anticipate any further hikes this year.
The central bank also adjusted its forecasts for the next two years, projecting a fed funds rate of 4.6% in 2024 and 3.4% in 2025. These projections represent an increase from the previous forecasts of 4.3% and 3.1% respectively.
Moreover, Fed members raised their expectations for economic growth. The Summary of Economic Projections now indicates an anticipated 1% gain in GDP, compared to the previous estimate of 0.4% in March. Officials also expressed increased optimism about unemployment, projecting a year-end rate of 4.1%, down from 4.5% in March.
In terms of inflation, the central bank revised its forecast to 3.9% for core inflation (excluding food and energy), while slightly lowering it to 3.2% for headline inflation. These adjustments reflect changes from the previous forecasts of 3.6% and 3.3% respectively, as measured by the personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge.
Following the Federal Reserve’s decision to refrain from raising interest rates but projecting future increases, treasury yields experienced fluctuations. The 2-year Treasury yield saw a minor increase of less than 1 basis point, reaching 4.705%. It briefly reached a session high of 4.777% immediately after the announcement, marking its highest level since March 20, before retracting some of its gains. On the other hand, the 10-year Treasury yield declined by over 4 basis points, settling at 3.8%. It is worth noting that yields and prices have an inverse relationship, with one basis point equaling a 0.01% change.
Meanwhile, the gold market faced challenges as it struggled to maintain stability following the Federal Reserve’s decision to leave interest rates unchanged.
Read here Full statement issued by Federal Reserve- FOMC statement (Quoting Federal Reserve)
‘Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, 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. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.’