Federal Reserve Kept Rates at 22-Year High 5.25-5.50% Range as Expected

The Federal Reserve kept rates unchanged in a target range of 5.25-5.50% in unanimous vote at their September FOMC and updated economic projections. The statement comes the day after yields on 10s and shorter tenors hit fresh highs for the year with the 2-yr yield reaching a level not seen since 2006 while the 10-yr yield hit a level not seen since November 2007. According to the CME FedWatch Tool, there is a 96.5% probability of no hike today. However, there are odds of a November hike around 30% while a December hike is around 40%. This statement is virtually identical to the July one. Last meeting was the 11th increase since March 2022, when they lifted rates from near zero.

Job gains have been robust in recent months, and the unemployment rate has remained low but both CPI and PPI showed some bounce monthly due to energy, not as the Federal Reserve hopes.

Fed Boardroom

Federal Reserve FOMC Statement 

Federal Reserve Announcement Wednesday 20 September 2023 14:00:00 ET

The FOMC kept rates at 5.25-5.50%

Conference To Follow At 2.30 ET PM With Chairman Powell


  • Unchanged rates
  • Target rate 5.25% – 5.5%
  • 2023 end of year target rate: 5.6%, unchanged from June
  • 2024 end of year target rate: 5.10% from 4.6% in June
  • The Fed previously hiked rates on July 26 to 5.00-5.25%
  • Decision was unanimous.
  • Economic activity has been growing steadily.
  • Job gains have decelerated but remain robust; unemployment is low.
  • Inflation is currently high.
  • The U.S. banking system is stable and robust.
  • Stricter credit conditions may impact economic activity, employment, and inflation.
  • The exact impact of these conditions is still uncertain.
  • The Committee is highly focused on inflation risks.
  • The Committee’s goals are maximum employment and a 2% inflation rate over the long term.
  • The target range for the federal funds rate is set at 5-1/4 to 5-1/2 percent.
  • The Committee will evaluate further information and its implications for monetary policy.
  • Factors considered for policy adjustments include the overall tightening of monetary policy, its delayed effects on the economy, and other economic and financial events.
  • The Committee plans to reduce its holdings of Treasury securities and other agency debts and securities.
  • The primary aim is to bring inflation back to the 2% target.
  • The Committee will keep assessing the economic outlook based on incoming data.
  • If risks arise that could hinder the Committee’s objectives, they are ready to modify the monetary policy stance.
  • Their evaluations will consider various data, including labor market stats, inflation trends, financial, and global events.

Market Reaction

Yields Higher After FOMC on Day:

  • U.S. Treasuries slid from highs after the release of the FOMC Statement, the accompanying economic projections pointed to a higher degree of hawkishness among policymakers.
  • The FOMC maintained its median rate forecast for this year, but the forecast for 2024 was increased to 4.60-5.40% from 4.40-5.10%. This means that the FOMC currently sees only about 50 bps of potential rate cuts next year, down from 100 bps in June.
  • FOMC lowered its median core PCE inflation forecast for this year to 3.7% from 3.9% while the forecast for 2024 was left unchanged at 2.6%.
  • The post-FOMC slide from highs has the 5-yr note and shorter tenors back in the red while 10s and 30s are hanging onto a portion of their gains.
  • 2-yr: +2 bps to 5.14%
  • 3-yr: +2 bps to 4.82%
  • 5-yr: +1 bp to 4.53%
  • 10-yr: -1 bp to 4.35%
  • 30-yr: -3 bps to 4.40%

Prior to release:

  • 2-yr: -8 bps to 5.04%
  • 3-yr: -7 bps to 4.73%
  • 5-yr: -6 bps to 4.46%
  • 10-yr: -5 bps to 4.32%
  • 30-yr: -4 bps to 4.39%

September 20 FOMC STATEMENT CHANGES via @Newsquawk

The full statement from the September 2023 Fed Decision

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.

FOMC dot plot and central tendencies (From September Meeting)

EOY 2023 5.6 and terminal rate

  • The Dot Plot sees the end of year Fed funds rate at 5.6%.
  • The 2023 EOY rate at 5.1%.
  • The Fed sees end of year 2023-year rate at 5.6%.
  • Sees 2024 rate at 5.1%

Implementation Note issued September 20, 2023

Source: Federal Reserve

From the TradersCommunity Research Desk