FOMC: Waiting for the Full Impact

BOSTON, MA, July 26, 2023 — The Federal Open Market Committee (FOMC) met today to assess the state of the U.S. economy and monetary policy.

What We Learned

As expected, the FOMC increased the Federal Funds Target Rate (fed funds) by 25 bps to a band of 5.25-5.50%, indicating the Fed’s commitment to reach its inflation goal. Additional monetary tightening remains a possibility this year despite the cooling of inflation data.

  • The market currently reflects lower than even odds of an increase in fed funds sometime in Q4.
  • The market now expects peak fed funds for the cycle to be in Q4, and then a reversal with fed funds at 5.00-5.25% by early 2024.
  • The Fed’s balance sheet normalization via Quantitative Tightening (QT) remains in place.

The Committee slightly altered their statement to note the moderate pace of U.S. economic activity. Similarly, the FOMC “will continue to monitor the implications of incoming information for the economic outlook.”

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