Takeaway

The Federal Reserve raised the target range for the federal funds rate by 25 bps to 3.75-4.00%. The committee argues the hike is necessary to combat elevated inflation, as underlying price trends have not meaningfully improved despite a solid and resilient US economy. The median participant projection sees the fed funds rate holding at 4.1% through the end of next year.

What the presenter said

• The FOMC raised the federal funds rate target by a quarter point to 3.75% to 4% to achieve a timelier return to its 2% inflation goal. [00:01]
• Inflation remains elevated, and the summer's inflation readings do not indicate that underlying trends have meaningfully improved. [00:52, 02:54]
• The committee views economic activity as expanding at a solid pace, with resilient domestic spending, strong productivity growth, and robust capital investment. [00:26, 00:38]
• The labor market remains in good shape, with the jobless rate low at around 4.1% and job gains keeping pace with the workforce. [00:44, 02:13]
• The standard for pausing requires confidence that underlying inflation is moving to the objective clearly and at sufficient speed, a standard the FOMC decided has not been satisfied. [04:23]
• The median projection from participants sees the fed funds rate at 4.1% at the end of this year and remaining there through next year. [05:47]

Trade ideas

The presenter put forward no actionable trade ideas. The overall market view is that the committee remains hawkish and unequivocally committed to its 2% inflation objective, viewing price stability as the predominant focus of its mandate.

Levels and data cited

• Federal Funds Rate Target: Raised to 3.75% - 4.00%.
• Unemployment Rate: Currently around 4.1%. Median projection is 4.1% for this year and next.
• PCE Inflation (12-mo): August reading was likely around 3.6%. Median projection is 3.7% for this year, falling to 2.3% next year.
• Core PCE Inflation: Running at about 3.2%.
• CPI: Running at about 2.4%.
• Real GDP (Median Projection): 2.3% for this year and 2.4% for next year.
• Federal Funds Rate (Median Projection): 4.1% at the end of this year and holding at 4.1% for next year.

Risks and what would invalidate this

• Inflation risks are to the upside.
• Labor market risks are viewed as roughly balanced.
• Overall uncertainty remains elevated, partly due to geopolitical developments.