The September Federal Reserve meeting provided few surprises, but ongoing uncertainty about the Fed's next move may mean more volatility ahead.
As expected, the Federal Reserve left its key policy rate—the federal funds rate—unchanged in September at a range of 5.25% to 5.5% but signaled that another rate hike later this year is the consensus view. The overriding message from the Fed is that it will continue to keep rates high until inflation comes down. This "higher-for-longer" message reflects a high level of uncertainty at the Fed about what it will take to move inflation sustainably lower.
The Federal Open Market Committee (FOMC) made a few modifications to its statement. It noted that economic growth was expanding at a solid pace, an upgrade from the previous statement that said activity was expanding at a "moderate" pace. It changed its description of the labor market, highlighting that job gains have slowed, as opposed to the "robust" job gains noted in June. In describing inflation, the Fed said inflation remained elevated, which should be no surprise considering that most inflation readings remain well above the Fed’s target.
Are we there yet?
The big question facing the markets is: Are we at the peak in the federal funds rate for the cycle, or are there more rate hikes ahead?
Based on the "dot plot," which summarizes projections of Fed members about where the policy rate is going, the consensus still looks for one more rate hike this year, and the size of rate cuts in 2024 diminished somewhat. The dot plot is a chart that records each Fed official's projection for where the federal funds rate will be at the end of each year, as you can see in the chart below.