Federal Reserve Press Release In Plain English – June 2023

The Federal Reserve chose to take a breath as the weather heats up. While not exactly promising that rates would stay here long-term, the Federal Open Market Committee (FOMC) chose to leave the target range for the federal funds rate where it is right now.

Just as important was another piece of data we got along with this announcement. Once a quarter, the Federal Reserve is asked to predict where several key economic indicators will be over the short-, medium- and longer-term time frames.

Based on these projections, Fed officials anticipate at least one more rate hike before the end of 2023, with a possibility of two more. The current consensus projections among the Committee members appear to open the possibility for rate cuts beginning in 2024.

One thing that is clear is that the pause indicates that, at least this time around, the Fed wanted to wait and see how things play out a bit before making another move. No one, including the Federal Reserve with its small army of economists, can say for sure what’s ahead. If you want to buy or refi and like the rate you see, go ahead and lock.

The Federal Reserve statement is below. My analysis is in bold.

Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.

In short, the Fed is happy with the job market. Inflation is squarely in its crosshairs.

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.

Although things have been going fairly smoothly in the grand scheme, a few bank failures indicate that there is some stress in the system. They also want to monitor things closely and be careful. If banks think there’s trouble ahead, they don’t tend to lend as freely. This has the effect of slowing down the economy. At the same time, inflation remains an issue.

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 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee 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.

This is about as straightforward as it gets for the Fed. Officials openly admit they want more time to access the impact of current monetary policy by waiting for additional information. They’re aware that the changes they make to the target range for the federal funds rate don’t have an instant impact, but instead play out over several months. At the same time, they want to continue selling treasury and mortgage-backed securities to give them room to maneuver in the next crisis.

Because mortgage-backed securities underlie mortgage rates, this has the impact of steadily pushing rates higher over time. When the Fed sells, someone has to come in and take up the slack in the market and other investors want higher rates of return.

It can’t be overstated: If you see a rate you like, take advantage.

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.

The Federal Reserve looks at a wide range of data when it comes to making their decisions and they’re focused on being nimble if anything changes. Specifically, they’re looking at inflation and inflation expectations along with conditions in the job market.

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; Lorie K. Logan; and Christopher J. Waller.

They came to consensus on the statement.