Fed to remain on hold until the middle of next year – Rabobank
22.11.2023, 15:00

Fed to remain on hold until the middle of next year – Rabobank

Following the last FOMC minutes release on Tuesday, economists at Rabobank do not believe that recent data are likely to spur the Fed into action.

The urgency of an additional hike does not seem large

The minutes of the FOMC meeting on October 31-November 1 confirm the Committee’s data dependence and intention to proceed carefully.

We should not attach too much value anymore to the remaining hike that is implied in the September dot plot. What’s more, the recent decline in yields has partially been caused by softer economic and inflation data, so the urgency of an additional hike does not seem large. 

Since the FOMC believes that a soft landing is in sight, it would be foolish to risk it by hiking further than necessary. If we were to see stronger economic and inflation data before the December meeting, longer-term rates are likely to rebound and substitute for a rate hike. Therefore we do not expect further hikes.

We expect the Fed to remain on hold until the middle of next year. By then we expect the FOMC to be ready to cut rates as rising unemployment (note that unemployment has quietly risen from 3.4% to 3.9% this year), most likely accompanied by a recession, will give the Committee confidence that inflation is on the right path.

 

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