Fed's Hawkish Shift? 3 Economists On Interest Rate Hold, New Projections For 2024

The Federal Reserve maintained the federal funds rate within the 5.25% to 5.5% range at its September meeting in a unanimous move.

The September dot plot reveals the median preference for the fed funds rate at the close of 2023 remains unwavering at 5.6%. This figure mirrors projections made back in June, hinting at the possibility of one more rate hike during either of the last two meetings this year.

For 2024, Wednesday’s Fed statement ushers in a noteworthy change with an adjustment to the central bank’s projection for interest rate cuts. It now points toward only a half-percentage point reduction, a hawkish shift from the earlier expectation of a full percentage point decrease.

Moreover, growth forecasts have been significantly revised upward, standing at a robust 2.1% for 2023, a remarkable leap from the 1% estimate in June. Yet unemployment and inflation forecasts saw only minor adjustments.

Three economists chimed in on the Fed’s interest rate decision and the evolving economic landscape.

Economists Analyze the Impact

Charlie Ripley, senior investment strategist for Allianz Investment Management, said: “While this meeting was widely viewed as a ‘skip’ meeting, we think it still remains to be seen if another hike is in the cards later this year.”

According to the expert, Fed officials have different views on whether they should raise policy rates to lower inflation to their 2% goal. Additionally, there are notable economic risks, including the ongoing UAW strike and the potential for a government shutdown.

Jeffrey Roach, chief economist for LPL Financial, said: “The Fed is implementing a ‘patient pause.’ Chair Powell initially made cautious comments, staying aligned with the Fed’s dual mandate. However, he emphasized multiple times that the Fed remains data-driven and can proceed cautiously, keeping the possibility of another rate hike on the table, as the Fed is focused on achieving price stability.”

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, made a bold call: “We believe the Fed is done raising rates for the year. The expert said significantly higher than expected inflation data could still embarrass the Fed and force their hand into one additional raise, even though they prefer not to do this.

Markets seem to agree with the notion the Fed is done hiking rates for the year.

As per the CME Group’s Fed Watch Tool, there is a 69% likelihood that the Federal Reserve will refrain from raising interest rates in November and a 54% chance it will also abstain from doing so in December.

The yield on the policy-sensitive two-year Treasury note, which is tracked by the U.S. Treasury Note ETF UTWO closed at 5.16% on Wednesday, the highest since July 2007.

MEETING DATE	375-400	400-425	425-450	450-475	475-500	500-525	525-550	550-575	575-600	600-625
11/01/2023	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	68.5%	31.5%	0.0%	0.0%
12/13/2023	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	54.5%	39.0%	6.4%	0.0%
01/31/2024	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	52.3%	39.7%	7.8%	0.3%
03/20/2024	0.0%	0.0%	0.0%	0.0%	0.0%	6.3%	50.8%	35.9%	6.9%	0.2%
05/01/2024	0.0%	0.0%	0.0%	0.0%	1.7%	18.0%	46.8%	28.2%	5.1%	0.2%
06/12/2024	0.0%	0.0%	0.0%	0.6%	7.2%	27.9%	40.5%	20.3%	3.4%	0.1%
07/31/2024	0.0%	0.0%	0.3%	3.6%	16.6%	33.6%	31.3%	12.6%	1.9%	0.1%
09/18/2024	0.0%	0.1%	2.1%	10.9%	26.1%	32.3%	20.9%	6.6%	0.9%	0.0%
11/07/2024	0.1%	1.1%	6.5%	18.5%	29.2%	26.6%	13.7%	3.8%	0.5%	0.0%
12/18/2024	0.8%	5.1%	15.3%	26.3%	27.3%	17.2%	6.5%	1.3%	0.1%	0.0%

Now read: Skyrocketing Fuel Costs Threaten 15% Drop In S&P 500, Pimco’s Erin Browne Warns

Photo via Shutterstock.