September 2023 FOMC Meeting: No Fed Funds Rate Hike

September 20, 2023
At the September 2023 meeting, the Federal Open Market Committee announced no change to the Fed funds rate.

In the just-released FOMC statement, the Fed announced no change to the Fed funds rate. This was in line with Fed funds futures trading and consensus market expectations. The guidance the market is looking for today from the Fed will come from the also just released Summary of Economic Projections and Chair Powell’s press conference, which will begin at the bottom of the hour. The Fed funds range remains at 5.25% to 5.50%.

Changes to the policy statement will set the stage for the press conference so we should listen to commentary about any unexpected changes in that wording. Bond market participants will be most sensitive to any hawkish wordsmithing made to the prior statement from late July. With the 10yr Treasury benchmark bond trading up against the recent high yield mark of 4.367%, a new hawkish tone could cause a sell off that pushes that yield to higher levels.

The Summary of Economic Projections, also known as the “dot plots,” will reveal how each of the Fed Governor’s expectations have changed over the past two months and help shape any change in the perception of the consensus view for future rate changes. If another hike is in the cards, as well as how early to expect the first possible rate cut.

What’s Next?

The ongoing strength of the economy and (only) modest easing of job market demand has changed recession expectations to include the possibility of a “no-landing” scenario that avoids a recession altogether. But the August inflation readings showing increases for the first time in months has the market on alert for the Fed reacting by pushing the 5.625% terminal Fed funds projection higher, as well as pushing further out into the future their first rate cut projection.

Going into today’s meeting, the futures market showed a 30% chance of a rate hike at the next FOMC meeting on November 1 and the first rate cut in July 2024. With today’s guidance digested, the bond market will continue to adjust its forecast — including how long the Fed will stay at the terminal rate before a first possible rate cut. In the market’s eye, “higher for longer” still has boundaries subject to change.

Before the next meeting on November 1, we will have a full month’s worth of economic indicators to absorb and to adjust what’s learned today (provided a government shutdown doesn’t stop the flow of fresh information). Becoming more relevant moving forward is the lagging impact of previous rate moves and the Fed’s accounting for those. Meanwhile, there’s rising gas prices, the UAW strike, China’s economic situation, a possible federal government shutdown, and the increased Treasury auction calendar to finance the record federal debt levels that will all factor into rate expectations. Not a clear sky to navigate by any means.

That leaves the mortgage rate market subject to an unusual and unusually high degree of uncertainty as rates are published day by day. Not to mention the stress of adjusting to lower origination volume our industry continues to work through.

What Do Borrowers Do Now?

Originators should explain to borrowers looking to finance the purchase of a home that the current mortgage rate market remains exposed to greater-than-typical levels of uncertainty. Mortgage rates have risen to levels not experienced in years but are still at risk of being pressured higher, in the short term as well as the intermediate.

The available housing inventory is still tight and will remain so for years to come. After finding a home for purchase and achieving an accepted offer, the best course of action is to secure financing quickly to avoid the worst of possible market volatility that could upend those plans.

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