Big Day for money.

 

Fed Debates When to Stop Raising Rates. What to Watch at Wednesday’s Meeting

Officials are likely to be ‘cautiously optimistic, with an emphasis on cautiously,’ says a former adviser to Chair Jerome Powell

If the Fed holds rates steady, it would be the second such decision in six policy meetings this year. PHOTO: AMBER BAESLER/ASSOCIATED PRESS

Federal Reserve officials are set to hold interest rates steady at their meeting Wednesday while debating what it would take for them to lift borrowing costs again this year.

Their anticipated decision would mark the second time in six policy meetings this year that the Fed hasn’t raised rates, slowing the pace of increases to allow more time to study their effects on the economy and inflation.  

The central bank will announce its decision and release policy makers’ quarterly economic projections at 2 p.m. Eastern time. Fed Chair Jerome Powell will answer questions from reporters at 2:30 p.m. Here’s what to watch for:

The rate projections

The Fed has signaled it will hold rates steady and make no substantive changes to its postmeeting policy statement. The public’s attention will focus heavily on officials’ quarterly interest-rate projections displayed in the so-called “dot plot.”

The median projection is likely to show officials expect to raise the Fed’s benchmark federal-funds rate at least once more this year, from the current range of between 5.25% and 5.5%. That would match their June projections when 12 officials expected that outcome and six anticipated no further increases. It is possible that this time fewer officials will pencil in that added hike.

The U.S. economy has been strong so far in 2023, with job growth continuing, GDP rising and inflation slowing. But several cracks in the economic armor have started to appear.

From a communications standpoint, it would be easier for officials to project one more increase and then opt against it than to signal no more increases and then hike again, said William English, a former senior Fed economist who is a professor at Yale School of Management. “I’d be inclined to leave it in unless you really think it’s not going to be necessary,” he said.

Another major focus on the dots: Do officials expect to need somewhat higher rates in 2024 than they did in June? Last time, the median projection showed they anticipated reducing rates next year by 1 percentage point, to around 4.6%. If officials now think inflation will slow somewhat less, they might project fewer rate cuts next year.