In its second consecutive monetary policy meeting, the US Federal Reserve (Fed) has maintained the federal funds rate at a range of 5-1/4 to 5-1/2 per cent, in line with its objectives of maximum employment and a long-term inflation target of 2 per cent. This decision was announced following the penultimate Federal Open Market Committee (FOMC) meeting of 2023, chaired by Jerome Powell.
The FOMC noted the robust economic expansion in Q3, though job gains have moderated from earlier in the year. The committee also affirmed the resilience of the US banking system while cautioning about potential impacts of tightened financial and credit conditions on economic activity, hiring, and inflation. It labeled September's steady inflation rate of 3.7% as "elevated".
Despite implementing a restrictive monetary policy, Powell expressed doubts about its effectiveness in combating high inflation. Meanwhile, the Bloomberg World Interest Rate Probability (WIRP) did not foresee a November rate increase but indicated a 24% chance for a rate hike in December. An additional 25 basis points (bps) hike is still considered possible, with no further hikes anticipated beyond 2023.
Amid these developments, the bond market is seen as an ally to the Fed, with yields rising quickly at the longer end of the curve. The FOMC continues to assess information impacting monetary policy, including cumulative monetary policy tightening and economic and financial developments.
As part of its policy decision, the committee instructed the Open Market Desk at the Federal Reserve Bank of New York to execute transactions in the System Open Market Account and conduct standing overnight repurchase and reverse repurchase agreement operations. It also authorized rollovers of Treasury coupon securities at auction and modest deviations for reinvestments if necessary.
In addition to these measures, the FOMC reduced holdings of Treasury securities agency debt and agency mortgage-backed securities (MBS). It also set caps for Treasury securities ($60 billion per month) and agency MBS ($35 billion per month), and authorized engagement in dollar roll and coupon swap transactions as necessary.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.