Fed holds rates: Powell pauses
Summary
On Wednesday, June 14, 2023, the Federal Open Market Committee (FOMC) voted unanimously to hold the fed funds rate at a target range of 5.00% - 5.25%. The FOMC statement continued to reference economic expansion and a robust labor market. In a departure from the last statement, the FOMC cited that “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.” The Fed’s projections were updated to show a median of two additional rate hikes over the remainder of the year in the face of increasing expectations for growth and inflation. Chair Powell characterized the upcoming July FOMC meeting as “live”.
Impact on rates
Following the release of the Fed’s updated projections, the short-term yields have moved higher, with the two-year yield up on the day. The front-end of the yield curve has repriced to remove the expectation of rate cuts that were previously priced in for 2023. The yield curve remains heavily inverted, with the market continuing to price lower rates than FOMC projections.
Moving forward
The next FOMC decision is scheduled for July 26, 2023. Market participants will likely remain focused on the evolution of employment and inflation data, as well as whether additional information on stress in the banking sector or financial conditions more broadly are easing or tightening. As evidenced in the FOMC statement and Chair Powell’s remarks, the Fed will be focusing on the potential “long and variable lags” often referenced with respect to the impact monetary policy has on economic activity.
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