The FOMC raised interest rates to 5.25%–5.50% at the July 2023 meeting, marking 11 rate hikes this cycle aimed at curbing high inflation.The Fed signaled that rates could be on hold for the foreseeable future, but they will keep an eye on changing economic conditions.The Federal Open Market Committee (FOMC) held rates steady during their most recent meeting in November 2023, as well as the prior September meeting.The market sees a recession as likely, but believe the Fed will still move rates higher than we’ve seen in over a decade during the remainder of 2022. However, there is still a great deal of economic data to come between now and then, with the three key metrics to watch being inflation, the job market and economic growth.

The market sees inflation moderating, though maybe not as much as the Fed would like, but a real risk of recession on the horizon.īy the end of this year and into next the market is betting that recessionary fears will begin to offset the Fed’s inflation-fighting energy.

Of course, this is essentially a mirror to the economic data the market expects. However, a smaller increase in November is then expected, and by December and into 2023 the market sees some chance that the Fed is either holding rates steady or just making 25bps moves up in rates. So as an summary of the Fed’s likely moves, September may see more of the same from the Fed, with perhaps another very large 75bps ‘inflation busting’ move up in rates. The market seems to believe that rates are likely to hold steady at this meeting, with a balance of risks between inflation continuing to be a concern and the economic environment moving closer to, or possibly well into, a recession. However, the market sees the chance of that as fairly small, both in terms of the chance of a hike and its size, which could be around the more typical 25bps moves the Fed has made historically. There is a chance that the Fed remains on its path of raising rates by this meeting. This is far enough out that the Fed will have had time to adjust to significant economic data between now and then with the first 2023 rate decision slated for February 1. However, 2023 is where it really gets interesting. Or, in a more optimistic interpretation, maybe inflation will be trending lower without too much economic weakness, thought that seems less probable. This is where the markets believe that recession risks may prevent the Fed from moving too strongly against inflation. However, the most likely move in the market’s view is perhaps a 25bps move up in rates. The market sees some chance that either inflation as softened or the economy has weakened sufficiently by December that the Fed holds rates steady at this meeting. Then the last scheduled meeting of the year in mid-December is expected to see a smaller hike. Hence the period of easy money that has persisted in America for many years may appear to be over if the November meeting goes as planned. The 3% level would also be significant, in putting rates back to where they were more than a decade ago back in 2008, since immediately before the pandemic, rates never quite hit the 3% level. However, the actual inversion would likely occur in the lead up to the meeting as shorter term rates factor in a likely rate move, and assume no big shift at the longer end of the yield curve.

Should that occur, this is the meeting that would take short-term rates over the symbolically importantly level of 3% which could well push the yield curve into deeper into inversion - an important recession signal.

Feds next meeting 2022