Investors’ primary attention will be on the FOMC’s “dot plot” projections.
Powell will emphasize his intention to stop inflation from reaching a 40-year high.
As Chair Jerome Powell leads efforts to reduce dangerous inflation, the Federal Reserve is prepared to boost interest rates to their highest level since 2008 and foresee more hikes.
For the third consecutive meeting, the Federal Open Market Committee is anticipated to increase rates by 75 basis points, which would be the most dramatic tightening since Paul Volcker oversaw the central bank in the early 1980s.
At 2:00 p.m. in Washington, the decision and quarterly estimates will be made public. Thirty minutes later, Powell will address a news conference.
Markets will focus on forecasts of monetary tightening made by policymakers in the “dot plot” for the end of the year and 2023, which reflects Powell’s approach that rates will need to remain higher for longer.
The FOMC will discuss a 75 or 100 basis-point increase at its meeting.
Although markets predict that rates will peak at 4.5% in March next year, Fed officials have been evasive about their long-term rate goals.
The head economist of Amherst Pierpont Securities, Stephen Stanley, predicted that “markets will be mostly focused on the dots.” We are seeing a peek behind the Fed’s longer-term thinking curtain.
The likelihood of a 100 basis-point increase will likely be discussed by Fed officials at the meeting after core consumer prices increased more than anticipated in August. The probability of such a raise is currently at nearly 20%, and one Wall Street analyst, Robert Dent of Nomura Securities, even rates it as a likely development.
When he remarked, “we wouldn’t hesitate to make an even greater shift than we did today if the committee were to agree,” it was acceptable; Powell left the door open to such a move at the most recent meeting in July.
Bloomberg Economics’ Opinion
Powell will underline the committee’s resolve to keep rates higher for a more extended period. He will be more honest about the discomfort that getting inflation down will cause. Although that will unavoidably happen at some time, he could decide against saying that the committee intends to slow down rate rises in favor of conveying that all options are on the table for the FOMC meeting in November.
— Eliza Winger, Anna Wong, and Andrew Husby (economists)
Roberto Perli, head of global policy research at Piper Sandler & Co., said, “I believe it’s a close call. We should have a nice conversation about this. Consistently, they have lagged. They must believe that being proactive will be beneficial.
Note: For the Summary of Economic Projections, economists were asked to predict what the average Federal Open Market Committee member would estimate.
Economic Projections Synopsis
The initial projections for 2025 from decision-makers will be included in the revised Summary of Economic Projections. While most of the market attention will be focused on the rate forecast for this year and the following year, forecasts may also indicate that the FOMC plans to maintain higher rates for a more extended period, with rates only falling to 3.6% in 2024 and 2.9% in 2025.
Powell has highlighted that to cut demand to match COvid-constrained supplies; the Fed is attempting to slow GDP to levels below its long-run average. According to analysts surveyed by Bloomberg, the committee is expected to lower growth projections for 2022 and 2023 and maybe raise projections for the unemployment rate for 2023 and 2024.
The Fed might forecast inflation reverting to its 2% objective only in 2025 due to inflation lingering longer than anticipated.
FOMC Statement Might Reiterate That Current Rakes Are Proper
One-fifth of economists perceive the statement as anticipating a slowed rate of increase.
Survey of economists conducted by Bloomberg News, Sept. 9–14
The Fed is expected to reaffirm that recent economic growth indications have slowed while maintaining its promise of “ongoing” interest rate rises without providing a size indication. According to some analysts, The FOMC statement may reflect Powell’s public remarks in July and at the Fed’s Jackson Hole conference in August, indicating that the rising rate would eventually reduce.
The committee may decide to express more significant worry about inflation in light of last week’s dismal consumer price index, which revealed core inflation, excluding food and energy, was increasing. This is according to Derek Tang, an economist at LH Meyer in Washington.
Watch for phrasing changes on inflation; he warned: “For instance, inflation is greater and going further away from our aim.”
Most analysts anticipate that the FOMC will vote this month, supporting Powell’s fight against inflation. If there is disagreement, it is most likely to come from Kansas City Fed President Esther George or St. Louis Fed President James Bullard, who has voiced hawkish dissent this year.
According to Julia Coronado, president of MacroPolicy Perspectives LLC, “there seems to be a spectrum of opinions on the committee” over whether to scale down to a 50 basis-point rise in November or continue at a 75 basis-point hike.
This month, the Fed accelerated the reduction of its $8.8 trillion balance sheet, bringing it to an annual pace of around $1.1 trillion. Some Fed officials have proposed the sale of mortgage-backed securities to get the balance sheet back to a more normal level. This meeting is not anticipated to result in a decision.
Wall Street broadly took Powell’s press conference in July as dovish since he stated that the central bank was doing away with specific forward guidance on rates and that he expected the rate of rising to decline eventually. In the weeks that followed, Fed officials worked to clarify their position that they were continuing to battle inflation.
In light of this, Powell may attempt to make his message appear appropriately hawkish and unambiguous in this meeting.
What Powell will say is most important, Perli added. “There have been communication problems in the most recent press releases. I fear that Powell will say anything that will mislead the market’s perception of the situation. People are concerned about another incident like that.