As many anticipated the Fed held interest rates steady at its September policy meeting, leaving the benchmark federal funds rate a range between 5.25% and 5.5% (a 22-year high). However, Fed Chairman Powell was quick to note that the Fed remains prepared to raise rates one more time before year-end.
Fed Funds Target Rate
QUICK TAKE: Rates will be higher for longer
While inflation is falling and is expected to be 3.7% for 4Q23 (per the Fed’s projections) it still remains above the Fed’s target of 2%. Fed Chair Powell has been adamant that controlling inflation is their priority, noting “the worst thing we can do is to fail to restore price stability.”
The economy has so far been able to shake off the impact of higher rates and 3Q23 GDP estimates are holding near 5%, highlighting the robust labor market and consumer. We continue to expect one final rate hike before year-end given stubborn inflation and the Fed’s willingness to forgo a soft landing in favor of price control. As such, we remain cautious on extending duration or credit in fixed income portfolios and favor shorter duration or floating rate debt with strong underwriting.
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A word on risk
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