Fed Leaves Rates Unchanged, Adjusts Economic Projections

Key Insights

• Fed left the federal funds rate unchanged, in line with analyst consensus.
• According to Fed projections, U.S. economy remains in a decent shape, while unemployment rate is expected to stay low.
• Fed expects higher rates in 2024 compared to its June projections.

On September 20, Fed announced its Interest Rate Decision. The Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent, in line with the analyst estimates.

Fed noted that it was strongly committed to returning inflation to its 2% target. The reduction of holdings of Treasury securities and agency debt and agency morgage-backed securities will continue as previously planned.

Fed also noted that job gains have slowed in recent months but remained strong, while the unemployment rate was low. The situation in the job market is one of the key factors in Fed’s decision making.

Importantly, Fed has reiterated that it will determine the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time based on various data points.

Fed has also released its economic projections. The federal funds rate projection for 2024 has increased from 4.6% to 5.1%. Change in real GDP for 2023 has improved from 1.0% to 2.1%, while Unemployment Rate projection for 2023 declined from 4.1% to 3.8%.

U.S. dollar rallied after the release of FOMC Statement. Traders reacted to Fed’s words on additional policy firming and the changes in Fed economic projections.

Gold pulled back from session highs as traders reacted to the strong rebound of U.S. dollar.

SP500 moved below the 4450 level amid worries about hawkish Fed.

Traders should note that Powell’s press conference starts soon. Most likely, Powell’s words will have a significant impact on market dynamics, so traders should be prepared for fast moves.

For a look at all of today’s economic events, check out our economic calendar.