Recapping the December 2023 Federal Reserve Meeting

Federal Reserve Keeps Rates Steady, Projects Rate Cuts in 2024

Examining the Fed's Latest Meeting and Economic Projections

Yesterday at the conclusion of the Federal Reserve’s December meeting, Chairman Jerome Powell announced that the Fed would be keeping rates steady for the remainder of the year, and included updated economic projections forecasting a total of a .75% decrease in the current benchmark interest rate in 2024. The Fed has kept its benchmark interest rate in the range of 5.25 - 5.5 percent since July of this year, its highest level in 22 years.

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Federal Reserve's Economic Projections Heading into Next Year

For three straight meetings now, the Fed has decided to maintain the current benchmark interest rate in order to let the full effects of the increases work through the American economy and slow down inflation. The Fed has consistently marked its goal of bringing inflation down to 2%, and its economic projections now anticipate bringing inflation down to 2.4% by next year as measured in the Personal Consumption Expenditures Price Index, which is the preferred measure of inflation for the Federal Reserve. Below is a graph released by the Fed that shows where the members of the Federal Open Market Committee believe the benchmark interest rate will be in 2024 and beyond.

This is a slight decrease from its previous set of economic projections in September, which marked inflation falling to 2.5% next year. While the Fed is optimistic about its chances to reach its goal of 2% without entering an economic recession, Chairman Powell did note that, “Nobody is declaring victory. There is always a probability that there will be a recession in the next year, and it’s a meaningful probability no matter what the economy is doing.”

Economic Data Influencing the Fed's Decision

The biggest influence on the Fed’s decision to project possible rate cuts in the near future is due to the positive inflationary data, and job market data. Powell stated, “Inflation has eased from its highs, and this has come without a significant increase in unemployment - that’s very good news,”

Recent inflationary data from the Consumer Price Index, another method of measuring inflation nationwide, showed that inflation increased by 0.1 percent on a monthly basis, for a 3.1 percent increase compared to the previous year. That’s a decrease from the 3.2% measure in October of this year, and is down considerably from the peak CPI measurement of over 9% during the summer of 2022.

It is worth noting  that the Fed is taking a cautious approach when addressing the possibility of future interest rate changes, noting that the FOMC, “... didn’t write down additional hikes … Participants also didn’t want to take the possibility of further hikes off the table.”

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Average Mortgage Rate Dips Below 7% For First Time in Months

In part due to the Fed’s projections of rate cuts in 2024 and the improving inflation data encouraging the Fed to believe the battle for inflation is progressing, the average mortgage rate across the nation has recently dropped below 7%, a first since August of this year. Sam Khater, chief economist for Freddie Mac stated “Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we will likely see a gradual thawing of the housing market in the new year.”

Danielle Hale, chief economist at Realtor.com, added to the sentiment expressed by Khater when talking with Yahoo Finance, mentioning that, “I think we’ll see a bigger uptick in housing demand if mortgage rates were to fall into the 5s because that will reduce the strength of the lock-in effect for a greater share of homeowners - more than 90 percent of whom have an outstanding mortgage rate that is under 6 percent”.

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