BOSTON, MA, June 14, 2023 —  The Federal Open Market Committee (FOMC) met today to assess the state of the U.S. economy and monetary policy.

What We Learned

In a well anticipated move, the FOMC left the Federal Funds Target Rate (fed funds) at the target band of 5.00-5.25%, indicating that the committee will assess the economic impact of prior monetary action. The possibility of tighter financial conditions in the wake of bank failures earlier this year may explain the FOMC’s willingness to ease off the monetary brake.

• The market currently reflects higher than even odds of an increase in fed funds at the next FOMC meeting on July 26.
• The market now expects peak fed funds for the cycle to be sometime late in Q3, and then a reversal with fed funds at 5.00-5.25% by early 2024.
• The June Summary of Economic Projections (SEP) forecasts fed funds at 5.6% by the end of 2023, 50 bps higher than the March SEP forecast.
• The Fed’s balance sheet normalization via Quantitative Tightening (QT) remains in place.

The Committee slightly altered their statement to add flexibility in assessing additional data and its impact on monetary policy. The FOMC “will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.” Similarly, Chair Powell emphasized in the press conference that the Committee remains highly attentive to inflation risks, future policy decisions will be data dependent, and the banking system is sound and resilient. He also pointed out that the question of the speed of tightening is a separate question from the level of tightening. In his view, today’s decision is consistent with the path of monetary policy recently enacted.

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