Next Fed Meeting Date and Forecast – December 2023

  • The Fed Interest Rate Decision is expected on Dec 13, 2023, 01:00 PM ET
  • Dominant Forecast – Policymakers are expected to maintain the current rate (5.25% to 5.5%) for the third consecutive meeting

The upcoming Federal Reserve meeting, set for December 12-13, 2023 is significant as it marks the final meeting of the year. During this meeting, Federal Reserve officials will not only make decisions about current interest rates but also project their plans for future rate adjustments. This meeting is particularly noteworthy as it follows a period of aggressive interest rate hikes by the Fed in response to inflation concerns. The decisions made in this meeting will provide insights into the Fed’s economic outlook and its strategy for balancing growth and inflation concerns in the coming year. These include assessing factors such as inflation rates, employment figures, GDP growth, and global economic trends. The outcome of this meeting is highly anticipated by investors, economists, and policymakers worldwide.

Fed Interest Rate Decision Forecast

The data based on CME Group 30-Day Fed Fund futures prices, reveals the market’s expectations for the upcoming Federal Reserve interest rate decision:

  • There is a 98.8% probability that the Fed will maintain the current target rate between 5.25% and 5.50%. This probability has risen from 96.2% the previous day and 95.4% the previous week.
  • Conversely, there is only a 1.2% chance of an increase to a target rate between 5.50% and 5.75%, down from 3.8% the day before and 4.7% a week earlier.

These figures indicate a strong market consensus that the Federal Reserve is likely to keep interest rates steady in their upcoming decision, aligning with the expectation of a pause in rate hikes.

Key Topics and Expectations

  • Interest Rate Decisions: The Federal Reserve is expected to hold rates steady, continuing a trend observed in the previous two meetings. This approach aligns with the goal of achieving a “soft landing,” where economic activity and job growth slow modestly while inflation steadily declines​​.
  • Inflation and Monetary Policy: A primary focus will be the assessment of inflation levels. Although inflation remains above the Fed’s 2% target, there’s growing confidence among officials that the current federal funds rate (5.25% to 5.5%) is sufficient to reduce inflation. The debate now shifts towards when to start cutting rates, considering various factors including the impact on unemployment rates and the upcoming presidential election​​.
  • Projections and Future Outlook: The meeting will also involve updating projections for the future path of interest rates. These projections are likely to indicate a shift towards lower rates by the end of 2024, suggesting that the next major policy move could be a rate reduction​​.
  • Political Implications: With the 2024 presidential election approaching, any decisions regarding rate cuts could become entangled in politics. Investors and consumers are keenly anticipating potential rate cuts, which would positively impact markets and lower borrowing costs​​.
  • Fed’s Cautious Approach: Despite the anticipation of rate cuts, the Federal Reserve, led by Jerome Powell, remains cautious. Powell has emphasized the importance of not cutting rates prematurely to avoid embedding higher inflation, referencing lessons from the 1970s. The Fed is prepared to tighten policy further if necessary, reflecting a balanced approach to managing economic growth and inflation​​.

A Call for Easing Policies

Paul Gambles, co-founder of MBMG Group, argues that the Federal Reserve must cut interest rates at least five times in 2024 to prevent a recession. He criticizes the Fed for being disconnected from economic realities. The current U.S. policy rate is the highest in 22 years, with markets expecting a rate cut as early as March 2024. Despite easing inflation pressures, Fed Chairman Jerome Powell remains cautious, stating it’s premature to discuss easing policies. Financial markets, however, interpreted Powell’s comments as dovish. David Roche, another expert, believes inflation won’t fall back to 2%, predicting a new normal around 3%.

The consensus forecasts a significant easing cycle starting in Q2 2024, with a total of 100 basis point cuts each in 2024 and 2025. However, Barclays warns that markets may be too pessimistic, noting that continued economic strength could fuel inflation and pressure U.S. bond yields. The outcome of the U.S. presidential election will also influence fiscal policy and long-dated yields.

Economist Mohamed El-Erian expressed concerns about the financial markets’ reaction to anticipated Federal Reserve policy changes. He noted the significant drop in the 10-year Treasury yield and the consequent stock market rally. El-Erian cautioned against presuming the Fed will start reducing rates in March, stating such expectations might be premature without clear evidence of an economic downturn. He advised caution ahead of upcoming inflation data, warning that it might not align with the current market optimism, potentially leading to disappointment among investors.