The Federal Reserve is expected to keep rates on hold for a third consecutive meeting.
Fed Chairman Jerome Powell will likely repeat decisions will be made meeting by meeting.
The US Dollar paused its advance ahead of the event and looks poised to extend gains.
The Federal Reserve (Fed) will announce the last monetary policy of 2023 on Wednesday, and market participants widely anticipate policymakers will leave the policy rate unchanged at 5.25%-5.5%. If that’s the case, it would be the third consecutive meeting the central bank refrains from acting after lifting rates to the highest level in over two decades in a little over a year.
The announcement will be complemented by the release of the Summary of Economic Projections (SEP) prepared by the Federal Open Market Committee (FOMC). According to September projections, FOMC participants expect PCE inflation to fall from 3.3% by the end of 2023 to 2.2% by the end of 2025.
However, officials still saw the Fed funds rate peaking at 5.6% this year, unchanged from the previous June projection, suggesting that there is still a 25 basis points (bps) rate hike on the table. Additionally, officials upwardly reviewed their growth projections for this year and the next, and anticipate two rate cuts in 2024, fewer than those projected in June, putting the funds' rate at 5.1%.
Finally, Fed members made it clear that they intend to keep rates higher for longer, while speculative interest believes the tightening cycle is done and bet on a potential rate cut as soon as in Q2 2024.
Economists at Citibank anticipate a dovish announcement, as they don’t expect the FOMC to deliver the last rate hike anticipated in the previous meetings.
“We expect that the Fed will revise their 2023 core PCE inflation lower and given that officials did not deliver the last hike they had anticipated in 2023, it is likely that the 2024 and 2025 median dots in the SEP move lower by 50 bps to 4.625% and 3.375%, respectively. The 2024 dot would then imply 75 bps of cuts in total for 2024, more than what the dots were showing in September. During the press conference Chair Powell will likely say that it is premature to speculate about cuts and that the Committee will decide meeting by meeting if it needs to hold rates steady or to raise the policy rate.”
