Federal Reserve Press Release In Plain English – November 2023

We’ll see what happens in December, but for now the Federal Reserve left the federal funds rate unchanged. Absent a rate cut, that’s the best news that could’ve been hoped for if you’re in the market for a mortgage.

No one is a confirmed oracle of interest rate movements, so if you’re in the market to purchase or refinance a home, go ahead and apply. If you see a rate you like, you can lock it and move forward.

My commentary on the press release is in bold and labeled below.

Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

Commentary: The Federal Reserve remains pleased with economic activity, including developments in the labor market. The unemployment rate is very low. Inflation is the sole problem child at this point.

The U.S. banking system is sound and resilient. Tighter financial and 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.

Commentary: After a few failures earlier in the year, the Fed sees the banking system as stable. It does say that as interest rates continue to rise, conditions for finances and credit are likely to get harder for Americans to deal with, which could slow down economic activity and hiring, but bring down inflation.

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 5-1/4 to 5-1/2 percent. The Committee will continue 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.

Commentary: If you didn’t believe the Fed’s 2% inflation target, it’s mentioned three times in this paragraph. I’m no psychic, but I think I know what has the Committee’s attention.

Members chose to leave the target rate unchanged this time around. If the projections from September are to be believed, the Committee will raise rates one more time this year. We’ll see. Traders have been split on this coming into this announcement.

Beyond that, the other significant thing for mortgage rates is the continued selloff of mortgage-backed securities (MBS). With the Fed having been a significant buyer over the last several years, the selloff means someone has to step up to take on that volume. Investors have demanded higher yields, which means higher rates.

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.

Commentary: The Federal Reserve looks at a ton of economic data in making its decisions. The biggest ones being called out here are labor market conditions as well as not only actual inflation pressures but expectations for inflation.

The idea is that if people expect prices to go up in the future, they’ll pay a higher price now and things start to cycle. That’s something the Committee is really trying to avoid.

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; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.

Commentary: The Committee was in full agreement, at least publicly. Usually, you get more details from the meeting minutes around what everyone was thinking.