The FOMC is trying to keep alive the prospect of one final hike before the year is out – NBF

The FOMC kept rates on hold while projecting one more hike this year, economists at the National Bank of Canada report.

Proceeding carefully but upward “dot drift” on clear display

In an almost universally anticipated decision, the FOMC voted to leave the target range for the federal funds rate unchanged at 5.25% to 5.50%. 

As expected, the FOMC is trying to keep alive the prospect of one final hike before the year is out. And while the implied near-term terminal rate may not be changed vs. June, the eventual implied pace of easing has been adjusted and pushed back. Relative to the FOMC’s prior guidance, there’s now a greater length of time where restrictive higher rates are thought to be needed to secure the inflation goal. This captures and is in response to the ongoing economic resilience on display in America (and now embedded in the FOMC’s baseline economic view). In the FOMC’s view, we’ll need to be more patient before less restrictive policy can be contemplated.

While the FOMC remains data dependent, we should expect it to hike one time before the year is out and there will presumably be some convincing needed before their guard can be lowered. Simply put, the evidence in hand is not yet convincing enough.