Neutral rate will remain uncertain after a pause this month

2023-09-20
Summary:

The Fed is set to pause rate hikes for the second time in 2023 due to slowing inflation but may consider another increase in November.

The Fed is expected to pause its interest-rate hikes for the second time this year following a slowing inflation while leaving the door open for another increase as early as November.


US Treasury Secretary Janet Yellen on Monday said she saw no signs economy is entering a downturn but warned that failure by Congress to pass legislation to keep the government running risked slowing momentum in the economy.


The dot plot will be the centre of attention as the central bank is divided on wrapping up its tightening cycle. Economists surveyed by Bloomberg expect one more increase this year.

Federal Reserve Dot Matrix

The odds for the policy rate staying unchanged at the November meeting stood at roughly 72%, CME's data showed. Goldman Sachs said on Saturday the Fed would begin to cut rates gradually next year.


Fed officials will also give their first economic projections for 2026 and update their view of the neutral or long-term interest rate, which some economists expect could rise above the 2.5% estimated in June.


A majority of leading academic economists polled by the Financial Times stuck a more downbeat tone though. More than 40% of those survey said two or even more rate hikes were not impossible.


Some of them argued that consumption was not cooling enough to slow growth as interest-rate sensitive sectors such as the housing market remained ‘surprisingly strong’.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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