Fed Preview: Forecasts from 14 major banks, preserving the option of hiking once more

We expect the Fed to remain on hold in the November meeting, in line with consensus and market pricing. As financial conditions have tightened significantly, we doubt the Fed will opt for hikes at a later stage either. Rise in term premium suggests higher yields are driven by other factors than the Fed’s forward guidance, which could spark more cautious tone from Powell. 

We expect the FOMC to leave rates on hold and that its attention in coming months will evolve to focus on how long rates will need to stay at peak levels. We are of the view that recent developments in core inflation and the labour market support our analysis that rates have peaked. However, the risk that growth momentum remains strong in coming months is a wild card that needs to be acknowledged. We therefore remain focused on incoming economic data.

The Fed is likely to leave the target range for the fed funds at 5.25%-5.50%. Only if the recent very high pace of growth does not weaken is a further rate hike to be expected – but not before December at the earliest.

Fed meeting will likely be a rather uneventful event. The Fed will keep rates unchanged at 5.25% to 5.5%. With no new forecasts, Powell’s press conference will be most important for investors. We don’t think the Fed has been convinced that a new hike is needed still, even with strong macro data from the US over the last week. That does not mean that rate cuts are on the horizon either. The Fed will still put emphasis on upside risks for inflation and for the need for high rates for longer.

We don’t expect any change to policy rates after the recent spike in Treasury yields prompted a tightening of financial conditions throughout the economy. The market seems to be doing the heavy lifting, so there isn't any need for the Fed to do much more – despite growth and the jobs market remaining hot and inflation still well above target. Fed Chair Jerome Powell has also acknowledged that long and variable lags between the implementation of rate hikes and the real-world impact point to the possibility that the full impact of policy tightening could still be yet to take full effect.

We expect the Fed to stay on hold and see future hikes as a function of financial conditions and the path of the economy. While our baseline is for rates to stay at 5.3% through year-end, we see an increasing risk of a hike in December or Q1.

The FOMC is widely expected to extend a pause to rate increases again, keeping the Fed funds target range unchanged at 5.25%-5.50% for a second consecutive meeting. We expect the Fed to maintain its broadly hawkish policy tilt as it stays consistent with its signaling of an additional rate increase through the dot plot. However, the Fed will reiterate that it aims to ‘proceed carefully’ as it formulates the next policy steps.

We expect the FOMC to remain on hold, stress its data dependence and intention to proceed carefully. During the press conference, we expect Powell to keep the door open to a rate hike in December. However, for the remainder of the year, we expect the bond market to do the Fed’s work, making further policy rate hikes redundant. Meanwhile, the focus of the FOMC may be shifting from how high to raise the policy rate to how long to hold the policy rate at restrictive levels.

The FOMC is poised to leave the target range for the federal funds rate unchanged at 5.25% to 5.50%. Chair Powell has said that policymakers can proceed carefully ‘given the uncertainties and risks, and how far we have come’. Moreover, a number of FOMC participants have suggested the run-up in longer-term interest rates might substitute for additional policy rate increases.

The Fed is widely expected to hold interest rates unchanged again in October after skipping a hike in September. US economic growth numbers have remained exceptionally resilient, but inflation pressures moderated over the summer and that is allowing the Fed room to be patient as they wait for already high interest rates to slow growth with a lag.

Inflation has fallen back from its highs, but core inflation of just under 4% remains well above target. We see a need for the Fed to remain on hold. We see the prevailing FFR of 5.25-5.50% as appropriately restrictive given current inflation and growth, but the rate becomes increasingly restrictive if inflation subsides as expected. Fed officials have signalled they want additional information on how the economy has responded to yield increases before taking additional steps. We expect that by early next year, inflation pressures can subside and growth moderate to paces that allow the Fed to stay on hold. Rate cuts are our view of the next fed funds rate change, but employment weakness, which we expect near mid-2024, needs to be the trigger for such action.

We look for no change in Fed policy. A prolonged pause could be unfolding, but it’s still premature to rule out another rate hike on December 13 or at the end of January.  We’re expecting the economic indicators to weaken meaningfully in the month or two ahead, sufficient to forestall further rate rises. Amid the lagged impact of policy rate hikes along with dwindling excess savings and tightening credit conditions, we reckon the headwinds from higher bond yields, the resumption of student loan payments and the autoworkers’ strike should do the trick. Then there are the risks posed by a potential government shutdown (after November 17) and a potential spike in oil prices owing to geopolitical developments. However, our expectation for the indicators could turn out to be incorrect; and if it is, so too will be our call for the current fed funds target range (5.25%-to-5.50%) marking the rate apex this tightening cycle.

We expect the Fed not to hike. However, given strong economic data and stronger September core CPI and PCE prints the Fed and Chair Powell will likely want to keep optionality in their language. It would also not be surprising were the Fed to add some language on determining how long to keep policy rates at restrictive levels. Chair Powell will once again try to walk a tightrope during the press conference emphasizing that at this juncture the FOMC ought to move cautiously in coming meetings. He will likely explicitly link caution in proceeding with rate hikes to the rapid rise of longer-term yields, as he did in a recent speech. He may also recognize that the resiliency of the economy so far and remaining upside risks to inflation likely imply that the policy rate needs to stay elevated for some time.

We expect the FOMC to leave the target range for the FFR unchanged at 5.25%-5.50%. While inflation is moving back toward the FOMC's 2% target, there is further progress to be made. We believe the FOMC will want to keep its options open for further tightening, and thus think the post-meeting statement will maintain the language that signals some additional policy tightening may be appropriate. We continue to anticipate the terminal rate of this cycle has been reached, though we acknowledge it is possible the FOMC will hike rates an additional 25 bps before the end of the year.