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In its September meeting, rather than issuing another rate hike, the Federal Reserve decided to maintain its federal funds rate at a top target of 5.5%. The central bank will continue reducing its holdings of Treasuries and mortgage-backed securities as part of quantitative tightening efforts aimed at slowing the economy and controlling inflation.
While there was a pause in rate hikes for September, the Fed signaled a hawkish stance by suggesting that further policy tightening may be necessary to bring inflation back to its 2% target. The Fed's projections indicate one more rate increase in 2023, with a longer period of holding higher rates and limited rate cuts expected in 2024, the National Association of Home Builders' Eye on Housing reports.
After an increase in rates in July, the pause for September will likely be temporary.
The Fed faces competing risks: elevated but trending lower inflation combined with ongoing risks to the banking system and macroeconomic slowing. Chair Powell has previously noted that near-term uncertainty is high due to these risks. Nonetheless, economic data remains better than expected. The Fed stated today: “economic activity has been expanding at a solid pace,” and that “job gains have slowed but remain strong, the unemployment rate has remained low.”
