Fed, With Rates At A Peak, Now Looks At A Hold And An Eventual Pivot Lower

• U.S. Federal Reserve officials seem poised to conclude the year with interest rate hikes in the past. Despite concerns about inflation above the 2% target, policymakers express confidence that the existing federal funds rate range is curbing economic activity and lowering inflation.
• While the focus now is on maintaining a plateau or considering another hike, the challenge arises in signalling a potential shift to rate cuts. This decision could be influenced by factors like presidential election-year politics, financial market conditions, and the desire to prevent a rise in the unemployment rate.
• The Fed's final meeting of the year in December will involve discussions on the future path of interest rates. The central bank faces the delicate task of conveying a potential end to rate hikes without signalling a commitment to imminent rate cuts, navigating through the complexities of projections and public perception.
• Despite a historically hawkish tone, recent statements from Fed officials suggest a more cautious approach. The "dot plot" projections may indicate a halt to rate hikes and potentially forecast cuts, with attention shifting to the possibility of a rate reduction in 2024. Given the economic context and the upcoming presidential election, the challenge lies in effectively communicating this shift.

(Source: Reuters)