Preview of the Federal Reserve's Decision: No Rate Hike Expected in September, Dot Plot and Economic Forecasts Are the Focus

Due to the almost certain decision of the Federal Reserve to maintain the target range for the federal funds rate at 5.25%-5.50%, economists and investors are primarily focused on the dot plot and the latest Summary of Economic Projections (SEP).

The emphasis will be on the officials' latest economic forecasts, which indicate how FOMC participants view the economic performance not only by the end of this year but, more importantly, in 2024.

Given persistent inflation concerns and the resilience of the economy, the signals conveyed by the Federal Reserve's rate forecast dot plot will be crucial.

The FOMC will announce its rate decision at 02:00 on Thursday morning, followed by a speech by Federal Reserve Chairman Powell half an hour later.

No rate hike in September, what about before year-end?

James Knightley, Chief International Economist at ING, wrote that mixed economic data and comments from Federal Reserve officials support market expectations of another pause in rate hikes at the September meeting.

According to data from the CME FedWatch Tool, traders believe there is a 99% chance of rates remaining unchanged.

However, due to persistent inflation concerns and the economy showing resilience, Knightley expects the Federal Reserve to hint at the possibility of another rate hike at the November or December meeting in its rate forecast dot plot.

This would mean that the federal funds rate would reach 5.5%-5.75% by the end of this year. Federal Reserve officials hinted in June that they expect it will be necessary to raise rates again before the end of 2023.

Steve Englander, Head of Global FX Research and North America Macro Strategy at Standard Chartered, said, "It would be a big surprise if the benchmark rate remains unchanged before the end of 2023." "From the market's perspective, it is easier to maintain the status quo of another rate hike, so it is difficult to consider the cancellation of the previous rate hike in 2023 as an accidental event."

When will there be rate cuts, and how many?

Blerina Uruci, Chief U.S. Economist at T. Rowe Price, believes that perhaps more important is the policymakers' rate forecast for 2024.

Although she expects the dot plot to show four rate cuts of 0.25 percentage points each, Federal Reserve officials can use this forecast as a communication tool to convey the message from Federal Reserve Chairman Powell that rates will remain at higher levels for a longer period than anyone may like or expect.

Englander of Standard Chartered expects the FOMC to remove one rate cut from its expected rate cuts in 2024. He anticipates that as the U.S. economy slows down, the Federal Reserve will implement rate cuts in the first quarter of next year.

Josh Hirt, Senior Economist at Vanguard, believes that the Federal Reserve will not begin lowering the target rate until the second half of 2024. "美联储的下一场战役将以'更长时间的高利率'为基础，" Uruci 说。“对于这一信息，最干净的沟通策略将是使用点阵图，美联储可能推迟降息。”

许多经济学家预计，明年的经济前景可能会略有改善。预计美联储对 GDP 增长的预测也将向上修正，而失业率预测可能会从 6 月份的数据向下修正。