November FOMC Meeting Summary

An artistic rendering of a dollar bill and a graph.

The FOMC had much to discuss at the latest meeting on October 31st and November 1st, including new data from the government agencies tasked with interpreting economic growth, unemployment, and inflation. This information helped to shape the committee’s latest interest rate decision.

FOMC Holds Rates Steady in November

For the second consecutive meeting, FOMC members voted to maintain the Fed Funds Rate at a target range of 5.25 – 5.50%. Committee members noted that this decision supports their dual mandate to “achieve maximum employment and inflation at the rate of 2 percent over the longer run.”

In the press conference following the interest rate announcement, Fed Chair Jerome Powell described the current state of interest rates as “restrictive”. He went on to say that the higher rates are putting downward pressure on economic activity and inflation.

However, Chair Powell noted that the full effects of monetary policy tightening have yet to be felt. These effects will likely emerge as the Fed continues to hold interest rates at a restrictive level.

Fed Will Continue to Shrink the Balance Sheet

Along with holding interest rates steady, the FOMC will continue to reduce the size of the balance sheet. This involves unwinding purchases made during the latest bout of quantitative easing through a process called quantitative tightening.

The Fed began the current round of quantitative tightening in June 2022. Since that time, only principal payments that exceed a monthly cap have been reinvested. Chair Powell explained that the Fed has already reduced securities holdings by more than $1 trillion during the current period of quantitative tightening. By further reducing the size of the balance sheet, the Fed seeks to put downward pressure on the economy and inflation.

Economic Developments Since the Last FOMC Meeting

Chair Powell noted several economic developments that influenced the FOMC’s latest decision. These included slowing inflation, resilience in the labor market, and surprisingly strong economic growth.

Slowing Inflation

The latest inflation data from the Bureau of Economic Analysis showed that the Personal Consumption Expenditure [PCE] price index increased by 3.4% for the year ending in September. This measure is down significantly from the same time last year when the PCE inflation rate was 6.2%.

While inflation has cooled from its highs last year, Chair Powell noted that the Fed’s 2% objective has not been met. The continued restrictive monetary policy stance is intended to help reduce inflation to that level.

Resilient Labor Market

The Bureau of Labor Statistics reported that the unemployment rate was 3.8% in September. This figure is moderately higher than one year ago when the unemployment rate was 3.5%, but still very low by historical standards.

While unemployment has increased modestly, more workers have also joined the labor force in the past year. In fact, the labor force participation rate has risen from 62.3% in September 2022 to 62.8% in September 2023.

Despite more people entering the job market, Chair Powell noted that labor demand still exceeds the supply of available workers. This trend could reverse course as tighter monetary policy continues to weigh on the economy and labor market.

Strong Economic Growth

Strong economic growth was another factor that Chair Powell noted as contributing to the latest interest rate decision. The most recent report from the Bureau of Economic Analysis showed that Real GDP increased by 4.9% in the third quarter – a significant escalation from the 2.1% growth rate in the prior quarter.

Historically, higher interest rates have often led to slower economic growth and higher unemployment. The latest data shows that these outcomes have been subdued in the current tightening cycle. However, there are often lags between the implementation of monetary policy and the economic results. As the Fed continues to battle inflation with higher interest rates, Chair Powell warned that “a period of below-potential growth and some softening of labor market conditions” are likely.

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