Fed meeting preview

FOMC going to be extra spooky this week. 👻

Here's a chart showing market expectations about where interest rates will go at different points in time.

Currently, rate CUTS are expected to begin in June 2024 with a 36% chance of another HIKE ahead.

Economists say the Fed will likely leave interest rates alone when its next rate-setting meeting concludes on Nov. 1, so Fed Chair Jerome Powell & Co. can keep assessing the economic backdrop. Here are the three biggest economic questions facing Fed officials ahead of their next meeting — and beyond.
1. Will surging bond yields keep the Fed on the sidelines indefinitely?
There’s an elephant in the room at the Fed’s upcoming meeting: Policymakers signaled in September that they were planning to raise interest rates one more time this year. If borrowing costs across the market keep climbing on their own, however, they might not have to.
Simply put, investors sway long-term bond yields, which rise when demand for those assets falls. The challenge, however, is determining what’s causing the surge, and some reasons could be better news to the Fed than others.
2. Just how strong is the U.S. economy?
A worrisome reasoning for bonds surging, however, could be investors expecting a resilient economy and stubborn inflation. Expectations that price pressures will keep rising are often a self-fulfilling prophecy.
“We have to let this play out and watch it, but for now, it is clearly a tightening in financial conditions,” Powell said.
The U.S. economy grew 4.9 percent in the third quarter, the strongest pace since 2021, driven by a resilient and eager-to-spend consumer. Employers in September also added 336,000 jobs, the most in eight months and a pace that blew past expectations. It underscores just how resilient the labor market has remained, defying the odds of a more material slowdown.
3. What will need to happen to bring inflation down to 2% once and for all?
The ultimate question for the Fed is whether it needs to raise rates more to see the progress it wants on inflation — or whether it just needs to keep rates at that historically high level for longer. The latter may have the biggest impact on consumers.
Economists in Bankrate’s third-quarter Economic Indicator poll are also questioning whether Powell & Co. need to push harder on the job market to get inflation back to 2 percent. Inflation has already been cut in more than half without a material dent in unemployment and hiring, they say. Meanwhile, the job market was tight in the pre-pandemic era without leading to more inflation.