FOMC appears to be in “hawkish hold” mode

Summary

• As widely expected, the FOMC decided to keep rates on hold at today's policy meeting. The decision to maintain the target range for the federal funds rate at its current level was unanimously supported by all 12 voting members of the Committee.

• The FOMC also maintained its current pace of quantitative tightening.

• The post-meeting statement continued to characterize inflation as "elevated." Additionally, the Committee maintained that "additional policy firming" may be "appropriate." In short, the FOMC is keeping open the door to hiking rates again if economic and financial developments warrant.

• This is the third time in the past four policy meetings that the FOMC has decided to maintain its target range for the federal funds rate at its current level rather than lift it further.

• It seems to us that the FOMC is now in "hold" mode, albeit in a hawkish way, rather than simply on "pause." That is, we think the bar to further rate increases is higher now than it was a few months ago.

• We forecast that the FOMC will remain on hold through most of Q2-2024, which is more or less consistent with market pricing. But the stance of monetary policy, as measured by the real fed funds rate, likely will become more restrictive in coming months as inflation slowly recedes back toward target but as the FOMC keep the nominal fed funds rate on hold.

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