The Fed did not raise interest rates, What do investors expect at the Fed meeting?

The US Federal Reserve (Fed) is about to decide whether to raise interest rates or not, and at the same time make new forecasts about the economy.

The Fed began its two-day policy meeting on September 19-20. This agency is forecast to keep the reference interest rate unchanged, waiting for more data on the impact of previous interest rate increases on the US economy. In July, the Fed raised interest rates to a 22-year high .

During this meeting, the Fed is also expected to announce new economic forecasts, showing stronger US growth and a lower unemployment rate than previously estimated. Fed officials also seem to agree that keeping interest rates unchanged this month is the right choice.

Investors are looking for clues that the Fed has completed raising interest rates. However, Fed Chairman Jerome Powell may emphasize in his post-session press conference that inflation remains high. This will leave open the possibility of raising interest rates again, possibly in November. Financial markets currently predict a 69% chance that the Fed will keep interest rates unchanged in November.

Fed Chairman Jerome Powell at a press conference on July 26. Photo: AP

Inflation and the job market have slowed this year, giving the Fed more room to keep interest rates unchanged and wait for more data. Despite fluctuations in the energy market, inflation is still expected to slow down in the coming months, mainly due to cooling car and rental prices. These factors give officials more certainty that they can stop raising interest rates without causing prices to skyrocket.

"There's nothing that suggests we need to act soon. We can sit here and wait for the data to come," Fed Board of Governors member Christopher Waller said on CNBC earlier this month .

The last time the Fed kept interest rates unchanged was in June, due to concerns about the banking crisis in the US curbing lending activities. When subsequent signs showed that the economy was not affected by this, the Fed raised interest rates again in July.

Another reason is that the Fed has raised interest rates enough to tighten the economy and bring inflation to the Fed's target of 2%. “Monetary policy is already very good,” New York Fed President John Williams said on Bloomberg this month.

However, although they feel secure with gradually decreasing inflation, they still face many other uncertainties. For example, rising energy prices can still push up inflation. The strike of US auto workers also caught the Fed's attention, because it affected the labor market.

The Fed wants to contain inflation without causing unnecessary pain to the economy. Rising interest rates are affecting the housing market. Officials are also trying to measure the impact on growth, consumption and employment.

Studies show it takes at least a year for these effects to fully appear. The Fed has been raising interest rates for 1.5 years. In a recent report, the Chicago Fed said that the impact from rising interest rates has spread throughout the economy. With current interest rates, inflation can reach the 2% target by the middle of next year without causing a recession.

The US Federal Reserve (Fed) announced that it would keep the reference interest rate unchanged at the highest level in 22 years, exactly as expected by the market.

After a two-day policy meeting, on September 20, the Fed announced that it would not raise interest rates. In recent weeks, this agency has signaled that it wants to wait for more data to assess the impact of previous interest rate hikes on the US economy.

Since March 2022, the Fed has raised interest rates 11 times, to cool down inflation, which is still double the target. Currently, reference interest rates in the US are about 5.25-5.5% - the highest since 2001.

Fed Chairman Jerome Powell at a press conference on September 20. Photo: Reuters

The Fed also announced a series of forecasts yesterday, showing that they want to raise interest rates to 5.63-5.87% this year. This means the Fed can raise interest rates again at the end of the year. The growth forecast for the US economy this year was also adjusted sharply upward, to 2.1%. Meanwhile, the unemployment rate is expected to decrease slightly.

However, Fed officials also believe that next year, the number of interest rate cuts will decrease compared to previous forecasts. This is also what investors are concerned about, that interest rates will remain high for a longer period of time.

"New forecasts show that the Fed is quite confident in the prospect of a soft landing in the US. Therefore, the need to loosen policy next year is also reduced," commented Seema Shah - global strategist at Principal Asset Management.

In a press conference after the session, Fed Chairman Jerome Powll said a soft landing "is feasible." However, this could be threatened "by factors beyond the control" of the Fed.

Rising energy prices can still push inflation up. The strike of US auto workers also caught the Fed's attention, because it affected the labor market.

"A soft landing is the fundamental goal and we are always working to achieve this. However, if price stability is not restored, inflation could still return," Powell said.

In the announcement after the meeting, the Fed commented that "the US economy is growing at a solid pace", instead of the "modest pace" like last time. The agency also said that job growth "slowed down over the past few months". In July, they described the job market as "exciting".

Fed officials emphasized that the agency is "committed to bringing inflation to the 2% target". Their next session will take place at the end of next month.