Fed Leaves Interest Rates Unchanged: What the Experts Are Saying

The Federal Reserve made the widely expected move of leaving interest rates unchanged when it wrapped up its regularly scheduled two-day policy meeting on Wednesday. If there was any sort of surprise, it was that policymakers expect stronger economic growth to keep interest rates higher for longer through much of next year. 

There was little doubt that the Federal Open Market Committee (FOMC) would once again pause in its campaign of interest rate increases on Wednesday after hiking in July. As expected, the central bank's rate-setting group left the short-term federal funds rate unchanged at a target range of 5.25% to 5.5%. Interest rate traders assigned a 99% probability to just such an outcome, according to CME Group. 

What was less certain was the central bank's outlook through year-end and beyond, and that was clarified with the release of the Summary of Economic Projections (SEP). The so-called dot plot showed that the median forecast for economic growth in 2024 increased to 1.5% from 1.1% in June.

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Higher-than-expected growth and other inflationary pressures have a majority of FOMC members forecasting the need to keep interest rates near current levels through much of next year. The likely path of interest rates moved higher because "economic activity has been stronger than we expected," Powell said at a press conference.

On Wednesday, however, with the fed funds rate sitting at a 22-year high, the Fed once again decided to pause, with the same slightly hawkish messaging intact. 

Powell has always said that the Fed's decisions will be "data dependent," and the most recent inflation data certainly helped the case for leaving rates unchanged on Wednesday. The August CPI report showed continued moderation in the pace of underlying inflation. Increases in core producer prices remain in check at the wholesale level, as well. 

Some experts say the Fed's hawkish stance makes it prudent to pencil in one more rate hike in 2023.

Either way, with the FOMC's latest rate decision now a matter of record, we turned to economists, strategists, investment officers and other pros for their thoughts on what the move means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Interest rates: the experts weigh in

"Although Fed officials did not increase the median federal funds rate they had estimated during the release of the dot plot in June of this year, the new projections show a still very hawkish Fed as they took away two rate decreases that had been in place during the release of the June SEP and corresponding dot plot. This is a clear signal to markets that it is committed, at least for now, to keeping interest rates higher for longer, as it has continued to convey in every meeting since it started to increase interest rates in this cycle. What the new SEP forecast showed is that high-interest rates are not expected to bring the economy into a recession next year. That is, the Fed is now expecting a soft landing. This means that no longer having a recession in its SEP forecast is consistent with the Fed’s mantra of higher interest rates for longer as it doesn’t see its inflation target being achieved until 2026." – Eugenio Alemán, chief economist at Raymond James

"As expected, the Federal Reserve made no change to their benchmark rate.  However, the forecasts for economic growth increased, while inflation expectations declined. Most importantly, policymakers reduced the number of anticipated rate cuts next year, from four to two, resulting in a fed funds projection of 5.1% for the end of 2024. This is consistent with our 'higher for longer' expectation. To the degree the Fed holds rates steady, any improvement in core inflation measures leads to higher real rates, which serve to further constrain credit while eliminating the need for the Fed to raise rates during an election year." – John Lynch, chief investment officer at Comerica Wealth Management

"While this meeting was widely viewed as a 'skip' meeting, we think it still remains to be seen if another hike is in the cards later this year. Fed officials appear to be divided on whether higher policy rates are needed to bring inflation back down to their 2% target. In addition, there are significant risks to the economy on the horizon with the autoworkers strike in motion and the potential for a government shutdown looming. Both these events could sideline the Fed from another hike this year. Thus, there is a decent case building that the last rate hike during this cycle may already be behind us. However, the Fed's projections did show less rate cuts in 2024, which gives the Fed more optionality to keep policy rates higher for longer should the economy fail to materially slow." – Charlie Ripley, senior investment strategist at Allianz Investment Management

"We, like many, expected to see the hawkish hold that Powell nodded to at Jackson Hole. However, the release was more hawkish than expected. While a share of past policy tightening is still in the pipeline the Fed can go into wait and see mode, hence the pause. However, the main risk remains tarnishing their largest asset, anti-inflation credibility, which warrants favoring a hawkishness reaction function. Most likely, the recent rise in energy prices and resilient consumption and activity data drove the higher median dot in 2024. We don't see a singular upcoming bearish catalyst, although strikes, the shutdown, and the resumption of student loan repayments collectively will sting and drive bumpiness in the data between now and their next decision. As a result, we believe that their next meeting will be live, but not a done deal." – Alexandra Wilson-Elizondo, deputy chief investment officer, multi-asset strategies at Goldman Sachs Asset Management

"Today's slightly hawkish Fed statement reflects the strength we've seen in the economy since their last meeting. Policymakers have zero incentive to get dovish now, especially with oil on the rise and the auto strike threatening to push up wages and potentially car prices. This announcement keeps them data dependent, which could be a positive if shelter costs continue to ease. Jerome Powell isn't ready to back down yet, but markets might look past the rhetoric. Investors know he's wary of declaring victory against inflation after his infamous transitory call two years ago." – David Russell, global head of market strategy at TradeStation

"The updated Summary of Economic Projections continue to show one additional interest rate increase before year-end. However, we do not believe that the Fed will ultimately execute on this rate increase and that the July hike was the final one of the cycle. We believe the Fed would prefer to have an additional hike in the dots and not need to execute one, rather than need to execute an additional hike and not have one in the dots." – Josh Jamner, investment strategy analyst at ClearBridge Investments 

"There's still some pressure on them to hike later this year. The longer the economy is able to remain this strong, even with these higher interest rates, it's going to put in doubt whether the Fed is doing enough to bring inflation down. But that doesn't necessarily mean the Fed has to keep hiking rates until inflation gets to 2%, either. Keeping rates at this level or slightly higher can bring inflation down to that point, but to ensure we're on the right track, month-over-month readings have to keep trending downward." – Brian Henderson, chief investment officer at BOK Financial 

"I am not too surprised at the rate pause given moderation in shelter and softening in the labor market since the last decision. It's worth noting, though, despite the pause, markets did not like that most of the FOMC members are signaling one more hike for the year. It looks like the market action is getting driven by the increased projections for rates in 2024 and 2025, so participants are having to acknowledge the fact that Fed is ready for their higher for longer environment." – Clayton Allison, portfolio manager at Prime Capital Investment Advisors

"Consumers need to look past today's news and pay attention to some critical factors in the economy. Despite today's decision from the Fed, the culmination of the past year of rate hikes coupled with high consumer goods prices puts consumers in a tight position ahead of the holiday season. A resilient U.S. economy and high consumer spending over the next several months will likely prompt the Fed to raise rates again heading into the new year." – Frank Lietke, executive director and president at Ally Invest Securities

"Bottom line, from the statements just released, the Fed is clearly adjusting its language to acknowledge the acceleration of both growth (in GDP terms) and prices (in Core data), and this will lead to rates remaining higher for longer than the dovish estimates had anticipated. This language makes clear that while the rates remain unchanged, the clear target is to get Core prices down to 2%. So this round goes to the Hawks and Bears!!" – Brian Mulberry, client portfolio manager at Zacks Investment Management

"This pause was unanimous, and the Fed may stay at this current rate for quite some time. The economy is growing stronger than the Fed thought and no one – not even Powell – knows what they will do in the fourth quarter. For sure the Fed is back to a neutral stance on balancing inflation vs employment. We are far from the recession many have predicted. We are closer to a soft landing. In fact, GDP was revised upwards from 1.1% to 1.5%. In my opinion, a soft landing is very possible." – Gina Bolvin, president of Bolvin Wealth Management Group

"There are three ways to tame the inflation beast – hike rates, run down the central bank balance sheet, and leave rates higher for longer.  Although the Fed remains hawkish in its signaling, we are clearly moving toward the end of the rate hiking cycle. Allowing higher rates to persist will go a long way toward ensuring that inflation retreats, but at a cost that seems to be downplayed in the Fed's forecast. Evidence is clearly building that the economy is slowing.  We expect that as we move forward, the Fed will need to tilt the focus of its dual mandate back toward maximum employment, i.e., promoting growth." – Van Hesser, chief strategist at Kroll Bond Rating Agency

"Call the Fed's latest decision a hawkish pause or simply a pause – there is no dovish pause right now. While the Fed kept a lot the same, holding the target range for rates steady and keeping the longer-term rate at 2.5%, there was a significant change. The Fed removed some rate cuts next year in its dot plot, so markets are correctly reading a less dovish outlook with rates that are higher for longer. The Fed expects more growth but less inflation, and this Goldilocks scenario, if it plays out, would be good for risk assets." – Jack McIntyre, portfolio manager at Brandywine Global 

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