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Fed stands pat on rates — Fed Meeting of November 1, 2023

analysis graph chart

Elbow room to raise or cut

  • Fed holds overnight rate range steady at 5.25% - 5.5%.
  • Economy expanding at a “solid pace.”
  • Inflation remains “elevated.”

One word

No surprise, again the FOMC did not change its overnight Fed Funds rate range. The current rate increase cycle started in March of last year, and the Committee raised rates at 11 of 14 meetings. Short-term rates remain at their highest in 22 years. The Fed will continue to draw down its bond portfolio, which pulls excess reserves from the banking system.

The Committee added the word “financial” in the second paragraph of its statement in the discussion of the economy. “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain.” There were no other changes to the statement. 

Treasury, not Fed

No surprises from the Fed’s press release other than the new word. Bond supply has been the market’s focus this week. Last quarter’s $1 trillion issuance in new Treasury debt has traders on edge, and likely Wall Street’s books are a bit heavy with Treasury inventory. The quarterly refunding announcement from the U.S. Treasury released this morning came in $2 billion less than Wall Street estimates. Traders promptly bid Treasury prices higher, lowering yields by one tenth of a percent. The “stand pat” statement by the Fed did not change market tone.

In the opening statement of his press conference, Chairman Powell did not elaborate on the word “financial,” but did reiterate the Committee’s goal of 2% inflation. He went on to elaborate that, “Given how far we have come,” the central bank is “proceeding carefully” with further rate increases. 


We have two takeaways from today’s statement and press conference. First, “financial conditions” likely references the nearly 1% rise in long-term interest rates since the summer. Running near 5%, Treasury long rates have pushed mortgages near 8% and some business lending rates above 10%. The Committee likely believes these higher rates need to work their way through the economy and slow economic activity in the coming quarters.

Second, employment must come down and wage growth must slow to help inflation drop from its present 3.5% to 4% range toward the Fed’s 2% goal. The Fed does have a slowdown in economic growth in coming quarters, but not a recession. “Higher for longer” interest rates would stay in place unless there is a recession. Then, the Fed has the flexibility to say that the landscape (“data dependent”) has changed and they can lower rates.

Today, we have clarity on most of the fall labor strikes. As a group, the strikes added to wage inflation, a frustration for the Fed. Congressional disfunction means odds of a government shutdown are at least 50/50. We were a bit surprised that geo-political risks from the five major wars were not mentioned. We do not see inflation moderating at a pace that would make the Fed happy. We would not rule out one more rate increase before the middle of next year.

Please let us know how we can help you.

Steve Orr is the Managing Director and Chief Investment Officer for Texas Capital Bank Private Wealth Advisors. Steve has earned the right to use the Chartered Financial Analyst and Chartered Market Technician designations. He holds a Bachelor of Arts in Economics from The University of Texas at Austin, a Master of Business Administration in Finance from Texas State University, and a Juris Doctor in Securities from St. Mary’s University School of Law. Follow him on X here

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