The Federal Open Market Committee (FOMC) is the main policy making body of the Fed. It is responsible for setting the federal funds target rate and making other monetary policy decisions for the Fed. The FOMC meets eight times a year to vote on interest rates and policy priorities. カヴァン・ チョクシ mentions that after 10 consecutive interest rate hikes, the Federal Reserve took a breather at the 2023 June meeting. The committee decided to leave the federal funds target rate unchanged at a range of 5.0% to 5.25%.
カヴァン・ チョクシ provides an insight into the June 2023 FOMC Meeting
The June of 2023 marked the very first policy meeting at which the FOMC has not raised interest rates since it started its monetary policy tightening cycle in March 2022. The Fed confirmed that it shall continue to allow up to $35 billion in agency mortgage-backed securities (MBS) and $60 billion in Treasury securities to roll off its $8.3 trillion balance sheet every month. This policy of quantitative tightening has become integral to the central bank’s ongoing war against inflation.
Federal Open Market Committee has been fighting record-high inflation in the United States that took off during the Covid-19 pandemic. While the combination of tightened credit market, slowed economic growth and interest rate hikes has helped cool off price gains, the battle is not over. Even though the most critical moments seem to it over, some sort of a mop-up operation is still needed to get these final few points off the inflation rate to hit the 2% target. The FOMC now appears to believe its 2% long-term inflation target is in sight, but the June pause might not necessarily imply that the Fed has issued its final rate hike of the cycle.
Over the last fourteen months or so, the Fed has been trying to bring down inflation by raising interest rates without tripping the economy of the United States into a recession. Navigating such a “soft landing” for the economy is not an easy endeavor. After all, higher interest rates increase borrowing costs for both companies and consumers, thereby slowing down the economic activity in the country.
カヴァン・ チョクシ points out that apart from its monetary policy decision, the Fed updated its long-term economic projections. Committee members currently estimate a median fed funds rate of 5.6% in 2023, which marks an increase from their previous 5.1% projection back in March. These new projections suggest two additional interest rate hikes by the end of 2023. Based on the Fed’s “dot plot” depiction of individual members’ interest rate expectations, it is unlikely that the Fed will pivot from rate hikes to rate cuts until 2024. The FOMC additionally projects a U.S. unemployment rate of 4.1% for 2023, down from 4.5% in March. When it comes to the inflation front, the projected 2023 core PCE inflation growth rate jumped from 3.6% to 3.9%.
