Post-FOMC Thoughts

In retrospect, the Fed’s Press Conference was not very insightful. It seem like they avoided too much of the discussion surrounding higher rates for next year. So we’re not getting the cuts that we were anticipating.

The Fed’s Projections showed only 0.50% of cuts for next year. This was a strong message delivered by the Fed. We had estimated this being dropped to 75 bps. The market was anticipating a 1% cut from this year because that’s what the Fed’s projections were in June.

2026 is at 2.9%, higher than their long-run 2.5% forecast meaning they are not in a hurry to cut rates.

• GDP Growth Rate Revised Upward as expected. - As growth remains strong - inflation will take longer to go down.

• Unemployment rate for 2023 revised downward - Also keep wages high and means slower core inflation decline

• Headline inflation projection increased for 2023

• Core Inflation projection decreased for 2023

The rate cuts for next year is still a moving target and will be dictated by how inflation behaves. We’re not just talking about Headline inflation because of oil and commodity prices going up. We need to factor in that core inflation will see upward pressure because:

• The Auto Strikes - these will lead new car prices going up because of lost production.

• General Worker strikes - we’re hearing about the major ones but there are wage negotiations going on in almost every industry. Bank of America announced higher minimum wage rates to $23/hour which will eventually be $25/hour by 2025. The waste management companies are experiencing mini-strikes as well. It’s only a matter of time before these higher wages start making their way through the core inflation numbers.

• Shelter Inflation - while we’re seeing some softness in the housing market with the week’s data but, we’re still far from any kind of meaningful downturn in rental prices. The phenomenon that the US housing market was experiencing - people not selling their existing homes because higher mortgage rates are prohibitive - still remains.

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