The Federal Reserve's Plans for 2023

The markets currently expect that the Federal Reserve will raise interest rates in November and December. The main thing to watch for will be comments on the Fed's policy direction for 2023.

Jerome Powell, chairman of the US Federal Reserve, speaks during a Fed Listens event in Washington, ... [+] D.C., US, on Friday, Sept. 23, 2022. The Fed is expected to set interest rates again on November 2, with the markets expecting a 0.75 hike. Photographer: Al Drago/Bloomberg © 2022 Bloomberg Finance LP
Jerome Powell, chairman of the US Federal Reserve, speaks during a Fed Listens event in Washington, D.C., US, on Friday, Sept. 23, 2022. The Fed is expected to set interest rates again on November 2, with the markets expecting a 0.75 hike. Photographer: Al Drago/Bloomberg © 2022 Bloomberg Finance LP The Federal Reserve is widely expected to raise interest rates on November 2, with the markets currently anticipating a 0.75% hike. This would be the first rate increase since June 2019 and would signal the Fed's confidence in the continued recovery of the US economy.

The Federal Reserve's decision to raise interest rates by 0.75 percentage points at its last three policy meetings has been a positive step in ensuring the stability of the economy. However, with the Fed not meeting this October, there is a chance that economic conditions could deteriorate in the meantime. The Fed's next meeting is on November 1-2, and it is imperative that they announce their interest rate decision as soon as possible to help maintain economic stability.

The markets are currently pricing in a 7 in 10 chance of a 0.75 percentage point rate increase at the next FOMC meeting, and a 3 in 10 chance of a 0.50 percentage point hike. This is according to the CME's FedWatch Tool.

Further Tightening: More Restrictions on Daily Life

The Fed has been clear over recent weeks that it is not satisfied with current U.S. inflation. It also does not consider current monetary policy especially restrictive. The Fed is likely to continue to raise interest rates in order to reach its inflation target. This could have implications for the stock market and the economy more broadly.

The Fed is keeping a close watch on unemployment, and so far the U.S. jobs market is running relatively hot. That matters as it give the Fed more freedom to fight inflation without too much concern for impacting the jobs market, so far. This is good news for the economy, as it suggests that the Fed is able to keep inflation in check without sacrificing job growth.

Recent Speeches: Catch Up on What's Been Said

In its recent speeches, the Fed is maintaining a clear inflation-fighting tone. This is a positive development, as inflation can be a major drag on economic growth.

As Chair of the Atlanta Federal Reserve, Raphael Bostic is one of the most influential voices on the state of the economy. In a recent speech, Bostic stated that the economy is "still decidedly in the inflationary woods." This is a troubling assessment, and it raises concerns about the future direction of the economy.

Powell's comments suggest that the Fed is planning on raising rates in the near future, as inflation is expected to pick up. This could have implications for the economy, as higher interest rates could slow down growth.

In her remarks on September 7, Fed Vice Chair Lael Brainard emphasized the central bank's commitment to achieving its inflation target. Brainard noted that the Fed had raised interest rates relatively quickly to get back to the level seen at the previous peak in the economic cycle, and that further rate increases would be necessary. Brainard's comments suggest that the Fed is prepared to keep interest rates low for an extended period of time in order to support the economy and ensure that inflation remains in check.

What Could Change: A Look at the Possibilities

The Federal Reserve has always been clear that its monetary policy decisions are data-dependent. However, there are a number of factors that could change the Fed's position going forward. Inflationary pressures could lead the Fed to raise interest rates, while a weakening economy could prompt the Fed to provide more stimulus.

Inflation on the Rise

The Fed is keeping a close eye on inflation, which has been trending down in recent months. However, prices for food and housing continue to rise at a concerning rate. The Fed will continue to monitor inflation closely in the coming months before making any decisions on interest rates.

The Fed's forecasts for inflation in the coming months are not encouraging, but there is still a chance that prices could moderate. If the Fed sees signs of moderation in the data, or if forecasts prove to be inaccurate, then there is a possibility that inflation will not be as high as expected.

The jobs market is strong!

The Fed's ability to fight inflation without excessively worrying about the broader impact on the US economy is a positive development. Low unemployment levels have given the Fed more flexibility to take action on inflation without unduly harming the economy. This is good news for the long-term health of the US economy.

The recent data on decreasing job openings in the United States suggests that the economy may be starting to weaken. This could mean that the Federal Reserve will have to manage risks on both sides in order to maintain economic growth. If the jobs market does continue to weaken, then a recession in the United States becomes a greater risk.

The economy is unlikely to see any major changes before the Federal Reserve's November decision. This means that interest rates are likely to stay the same for the time being. This is good news for those who are looking to borrow money or invest.

The Dollar: How It Got Its Name

The strong dollar has been a boon for the Federal Reserve this year, helping to dampen inflationary pressures. If the dollar were to weaken after its strong run in 2022, the Fed would likely need to raise interest rates incrementally to maintain price stability.

Is it better to wait and see, or act now?

The Fed's aggressive actions on interest rates in 2022 are likely to continue, with further rate hikes expected at the next two meetings. This is due to the fact that monetary policy works with unpredictable lags, meaning that the full effects of the Fed's actions may not be felt for some time. This could mean continued economic growth in the short-term, but also heightened inflationary pressures down the line.

The central bank's aggressive stance on inflation is winning out for now, but there are some voices calling for a pause in hikes to better analyze the impact of recent decisions. It's still early days on that front, however, and it remains to be seen how the situation will develop.

As we move into the next few months, it will be interesting to see if some policy-makers adopt a more cautious "wait and see" approach to evaluating the economic impact of recent large interest rate increases. The minutes from the Federal Reserve's September meeting, due to be released this month, may give us some early indications of whether this perspective is gaining ground.

What to Expect When You're Expecting (a Baby, That Is)

The Fed is expected to raise rates again on November 2, with a 0.75 percentage point move viewed as most likely. The question then is how the Fed sees rates moving at the December meeting and into 2023.

The markets currently believe that the Federal Reserve will begin to slow down on interest rate increases in 2023. However, if inflation continues to rise and the US economy appears strong, that expectation could change. Alternatively, if a recession is looming and inflation begins to slow down, cuts to interest rates in 2023 could become a possibility.