After the recent release of August’s inflation data, which showed that inflation slightly increased for the second consecutive time, One thing we all anticipated was that rate cuts were no longer on the table for consideration next year. The Board of Governors of the Federal Reserve met for the September meeting to announce the next set of monetary policy.
The Fed decided to keep interest rates unchanged at 5.25%-5.50%, taking a pause from an aggressive rate-hiking campaign that began in March 2022 to fight rising inflation.
The Fed's decision to pause on rate hikes was seen as a sign that officials are concerned about the potential for a recession. The Fed also signaled that it could continue to raise rates at least one more time this year, but that the decision will depend on the data that comes in.
In addition to its decision on interest rates, the Fed also released its updated economic projections. The Fed now expects GDP growth of 1.7% in 2023, down from its previous forecast of 2.2%. The Fed also raised its unemployment forecast to 4.1% at the end of the year.
The Fed's economic projections suggest that the central bank is becoming more concerned about the risk of a recession. At some point, Powell declared that the risk of a recession was no longer imminent and that a soft landing was rather looming than a recession. But now, the Fed reverse their predictions and the expectation of a possible “mild” recession is still on the horizon. The Fed has signaled that it is willing to raise rates further if necessary to mitigate the risk of inflation.
The next Fed meeting is scheduled for October 31-November 1, 2023. Economists are divided on what the Fed will do at this meeting. Some believe that the Fed will continue to raise rates, while others believe that the Fed will pause or even cut rates.
The Fed's decision on interest rates will depend on the data that comes in between now and the next meeting. If the economy continues to slow and inflation starts to come down, the Fed may be more likely to pause or cut rates. However, if the economy remains strong and inflation remains high, the Fed may be more likely to continue raising rates.
The Fed's decision to keep interest rates unchanged in September 2023 has a mixed development for the economy. On the one hand, Higher interest rates will continue to slow economic growth and make it more expensive for businesses to borrow money and invest. By keeping interest rates unchanged, the Fed is reducing demand. The economy is still not at a place where it would be safe to encourage spending and borrowing. If the fed try to stimulate the economy by cutting interest rates and applying quantitative easing, inflation will be rampant in no time.
On the other hand, the Fed's decision to keep interest rates unchanged is also a sign that the central bank is concerned about the potential for a recession. If the Fed does decide to raise rates further in the coming months, it could slow economic growth further and even lead to a recession, which will be catastrophic for the U.S. economy.
Overall, the Fed's decision to keep interest rates unchanged in September 2023 was a cautious move. The Fed is trying to balance the need to fight inflation with the need to avoid a recession. It remains to be seen what the Fed will do at its next meeting in October-November 2023.