The recent decision by the United States Federal Reserve Open Market Committee (FOMC) regarding interest rates came as no surprise, with the committee opting to maintain the current interest rate range of 5.25% to 5.5%. In line with expectations, the FOMC also hinted at the possibility of another rate hike within the year. Chairman Jerome Powell, during his press conference on September 20, reiterated the ongoing commitment to address inflation and stressed that the task of returning it to the Federal Reserve’s 2% target was far from complete.
However, what caught many off guard was the Federal Reserve’s upward revision of its long-term forecast for the Federal Funds Rate. They now anticipate this rate to reach 5.1% by the close of 2024, a notable increase from the 4.6% projection made in June. Furthermore, the new forecast suggests that the rate will gradually decrease to 3.9% by the end of 2025 and then further to 2.9% by the close of 2026. These figures represent a substantial departure from previous forecasts and hint at a “prolonged period of elevated rates,” a scenario that had not been widely anticipated by market participants.
