As the first day of November approaches, financial markets and economists are eagerly anticipating the Federal Reserve’s latest interest rate decision, set to be announced at 2:00 PM ET. The decision, along with the accompanying Rate Statement, will provide crucial insights into the Fed’s stance on monetary policy, economic indicators, and inflation. This blog post will delve into the expectations of various financial experts and analysts regarding the upcoming announcement.

CME Fedwatch Tool Predictions:

Before we explore the views of different financial institutions, let’s take a look at the current prediction from the CME Fedwatch Tool, as of October 30th. It suggests a staggering 98.3% likelihood that the Federal Reserve will maintain the current interest rates at this meeting. This would mark the third consecutive time with no changes.

The Focus on the Rate Statement:

With the interest rate largely expected to remain unchanged, attention will shift towards the Rate Statement. Analysts and investors will scrutinize it for any indications of how the Fed perceives the impact of geopolitical issues on the economy, the strength of the US GDP, and the ongoing inflation situation, especially in relation to the Federal Open Market Committee’s (FOMC) policy outlook and the possibility of a “soft landing.”

Expert Opinions:

Let’s explore the perspectives of three major financial institutions regarding the upcoming Federal Reserve decision.

1. ING:

ING believes that, despite robust 3Q GDP growth, a strong job market, and inflation above the 2% target, the Federal Reserve will likely keep the Fed funds target range unchanged at 5.25-5.50% for the second consecutive meeting. This stance is in line with the recent surge in longer-dated Treasury yields and tightening financial conditions, which have reduced the need for further rate hikes. ING also points out that Fed Chair Powell has emphasized the “long and variable lags” between policy rate changes and their effects on the real economy. Moreover, tightening lending standards and selective lending by banks could contribute to negative bank lending before the year’s end, potentially indicating a recession.

2. Wells Fargo:

Wells Fargo expects the Federal Reserve to leave the target range for the federal funds rate unchanged at 5.25%-5.50%. Despite robust 3Q GDP growth, the bank anticipates that the FOMC is comfortable with the current monetary policy stance. However, policymakers have expressed a preference for another 25 basis points rate hike by the year-end to address ongoing inflation. Wells Fargo suggests that the terminal rate for this rate cycle has likely been reached, but acknowledges the possibility of an additional rate hike.

3. JPMorgan:

JPMorgan notes that the FOMC chose to keep the federal funds rate unchanged at its September meeting. The “dot plot” revealed a hawkish stance, with a median FOMC member expecting only two rate cuts in 2024. This reflects the Fed’s expectation of economic resilience, with higher GDP growth and a lower core PCE forecast. Despite an optimistic outlook, JPMorgan acknowledges the potential challenges of over-tightening in the face of economic headwinds.

Recap of the Previous Meeting:

The previous FOMC meeting, held on September 20th, saw the Federal Reserve keeping rates unchanged at 5.5% for the second consecutive time. This decision was widely anticipated. However, the accompanying Summary of Economic Projections revealed more hawkish forecasts than the market expected, leading to strength in the dollar, US 2-year government bond yields, and weakness in the S&P 500.

Conclusion:

The Federal Reserve’s interest rate decision is a critical event for financial markets and the broader economy. While most experts anticipate no change in interest rates, the Rate Statement and the Fed’s approach to addressing inflation and economic indicators will be closely watched. As we await the decision on November 1st, it’s clear that the Federal Reserve continues to navigate a delicate balance between maintaining economic growth and addressing inflation concerns.