What Changed in the FOMC’s November Statement
The Federal Open Market Committee made modest changes to its policy statement, adjusting it to reflect a stronger labor market and more restrictive financial conditions.
The Federal Reserve held steady on rates for a second-straight time at the conclusion of its November meeting and kept the federal funds target rate at 5.25% to 5.5%. Fed Chair Jerome Powell offered additional insight into policymakers’ latest decision and shared his thoughts on how the central bank may proceed in December.
According to Powell, household and small business balance sheets may be stronger than expected
“We may have underestimated the balance sheet strength of households and small businesses, and that may be part of it,” he said during the press conference.
While he said the country will eventually see pre-pandemic savings levels, that point may not be here yet.
Investors bet rates are nearing an end as stocks rally
The major averages turned sharply higher after 3 p.m. as traders took an upbeat read off of the Federal Reserve’s latest decision.
At 3:09 p.m. ET, the S&P 500 was up by about 1%, while the Dow Jones Industrial Average gained 0.7%. The Nasdaq Composite was the outperformer of the three indexes, up 1.3%.
To control inflation, Powell says slower growth and a softer labor market are likely to be needed
“I still believe, and my colleagues for the most part still believe, that it is likely to be true … that we will need to see some slower growth and some softening in the labor market to fully restore price stability,” Powell said.
In Powell’s view, it won’t be difficult to raise rates again after another pause
“The idea that it would be difficult to raise again after stopping for a meeting or two is just not right,” Powell said. “The Committee will always do what it thinks is appropriate at the time.”
Powell says that the Fed is not considering rate cuts at the moment.
“The fact is the committee is not thinking about rate cuts right now at all. We’re not talking about rate cuts,” Powell said. “We’re still very focused on the first question, which is ‘have we achieved a stance of monetary policy that’s sufficiently restrictive to bring inflation down to 2% over time, sustainably?’ That is the question we’re focusing on.”
After Chair Powell announced there were no decisions on December, stocks dialed back some gains
The major averages pulled back on some of its earlier gains after Federal Reserve Chair Jerome Powell said that the central bank hasn’t yet reached a decision on how it will proceed at its December meeting.
Stocks remained positive, even as earlier gains were moderated. The S&P 500 was last up 0.3%, the Nasdaq Composite was up 0.5%, and the Dow was up 0.1%.
Powell says inflation still has a ‘long way to go’
“A few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. The process of getting inflation sustainably down to 2% has a long way to go,” Powell said.
Rates are likely to remain stable until next year, Goldman Sachs Asset Management says
After the Fed’s latest policy announcement, Whitney Watson of Goldman Sachs Asset Management thinks rates will stay at these levels for a while.
“The economy’s resilience has not stalled labor market rebalancing or revived wage and price pressures, suggesting disinflation will progress and indicating that the Fed will likely keep its policy unchanged into 2024,” said the firm’s CIO of fixed income and liquidity solutions.
“Nevertheless, there are risks in both directions. The rise inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike,” Watson said. “Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”
What’s new in the Fed statement?
Policymakers made several tweaks to their November statement.
Updates to the text include acknowledging the “strong” pace of economic expansion in the third quarter. The central bank also noted that job gains have “moderated since earlier in the year.”
Economic assessment updated by Federal Reserve
In its decision to keep interest rates steady once more, the Federal Reserve upgraded its stance on the economy.
This latest decision from the central bank arrives on the heels of a report showing that U.S. gross domestic product expanded at a 4.9% annualized rate, surpassing expectations.
Federal Reserve keeps rates steady a second time
The central bank left interest rates unchanged for a second consecutive time at the conclusion of its November meeting. That keeps the fed funds’ target rate at a range of 5.25% to 5.5%.
Federal Reserve may not take rate hikes off the table, says former Richmond Fed president
“There’s nothing in it for him [Chair Jerome Powell] to take interest rate hikes off the table and signal a definitive pause for a long time,” he said on CNBC’s “Squawk on the Street.” “He’s going to keep them on the table. They’re still far from getting done bringing inflation under control.”
“It looks like 3.5% or 4% is right around where inflation is now, so we have a ways to go is the point,” he said.
A Fed decision is expected in the near future
Fed funds futures pricing suggests a roughly 98% likelihood that the benchmark rate will remain within the central bank’s target range of 5.25% to 5.5%, according to the CME FedWatch Tool.
The Fed’s rate decision arrives nearly a week after a report showed that the U.S. gross domestic product grew at a 4.9% annual pace – surpassing expectations. At the same time, Treasury yields have remained high and the rate on the 10-year note popped over 5% in October.
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