Fed Funds Rate Left Unchanged, 2023 GDP Growth Estimate Revised Higher

Brian Turner
20 Sep, 2023
New York City

The Federal Reserve said it will hold the fed funds target range at 22-year high between 5.25% and 5.50% but also held out for another rate hike later in the year, after the conclusion of two-day meeting. 

Policymakers appeared divided after mixed economic signals, but committee members prefer more restrictive interest rate policy in future. 

The Fed's projection released showed that policymakers are likely to increase rates higher one more time at the next meeting in November, but are also estimating fewer rate cuts in 2024. 

Policymakers now estimate the fed funds rate at 5.6% by the year's end, the same as in the June forecast, while rates are expected to be higher at 5.1% in 2024, compared to 4.6% estimated at the end of June meeting.

Committee members sharply revised higher economic growth outlook to 2.1% from the previous estimate of 1.0% released in June, and 2024 GDP rate of 1.5% compared to 1.1%. 

The economic growth forecast suggested that members are not looking for a recession this year or next. 

The committee members also revised slightly higher inflation outlook, as measured by the Price Consumption Expenditure Index, to 3.3% from 3.2% but the was unrevised at 2.4% in 2024. 

The core PCE rate in 2023 was revised slightly lower to 3.7% from 3.9% but the alternative measure of inflation was left unchanged for 2024 at 2.6%. 

The unemployment rate forecast was revised lower to 3.8% from 4.1% in 2023 and to 4.1% from 4.5% in 2024.

Despite multiple rate hikes by the Federal Reserve over the last seventeen months, inflation has stayed above the Fed's target rate because inflation pressures have broadened from commodities and manufactured goods to services and wages. 

The policymakers have little influence over the direction of the commodities prices, like metals and energy, but hold a larger sway on the direction of mortgage rates and borrowing rates for corporations and consumers.