Federal Reserve Holds The Line On Interest Rates At September Meeting
Federal Reserve officials announced on Wednesday the central bank wouldn't raise the federal funds rate, keeping it in the range of 5.25% to 5.5%. The Fed has raised the rate 11 times since early 2022, when U.S. inflation spiked.
The central bank isn’t necessarily finished hiking rates, though.
“We're committed to achieving and sustaining a stance of monetary policy that's sufficiently restrictive to bring down inflation,” Federal Reserve Chair Jerome Powell said at Wednesday's press conference following the Fed's announcement. “But the fact that we decided to maintain this rate doesn't mean that we've decided that we have or have not reached that stance of monetary policy that we're seeking.”
A majority of participants in the Fed's Summary of Economic Projections said it will be appropriate for the central bank to raise rates one more time in the two remaining meetings this year, Powell said, though others believe that interest rates have already been raised enough.
“We want to see convincing evidence that we have reached the appropriate level,” Powell said. “We've seen progress, and we welcome that. But we need to see more progress.”
Although rates are holding steady for now, they have still risen to a point that means property owners are challenged.
“The consensus is now higher for longer,” Ashland Greene Capital CEO Shakti C'Ganti said. “The longer the federal funds rate sits at its current levels, the more challenging it becomes for buyers and owners and landlords. Forget about buying new properties. I'm talking about just holding on to existing property.”
Some forecasts now don't see a cut in rates until the middle of next year, C'Ganti said. Meanwhile, a lot of lower-interest loans are poised to come due in October alone — well over $4B in CMBS loans associated with multifamily properties, according to one estimate — and November's total will be nearly $4B as well.
“Next year is a long time for property owners facing the wall of maturity,” C'Ganti said. “If you've got a maturity coming up in December, say, you'd probably better start thinking about some sort of fire sale. Up until now, sellers have almost just been pretending.”
Inflation isn't the beast it was roughly a year ago, when it peaked at an annualized 9.1% in June 2022, but it hasn't been completely tamed to the Fed's satisfaction either. The central bank's longstanding stated goal is an inflation rate of 2%.
In August, the consumer price index ticked up to an annual increase of 3.7% compared to July's increase of 3.2%, buoyed by a spike in energy prices, which were up 5.6% for the month. A jump in shelter prices added to the increase.
However, the so-called core rate of inflation, which takes out volatile food and energy prices, came in at 4.3% in August, the lowest for that metric since September 2021.
The Federal Reserve's statements on Wednesday are consistent with recent ones Powell has made. Although the Fed didn't act this time, Powell suggested in August at the Fed’s annual economic symposium in Jackson Hole, Wyoming, that the effort to put a lid on inflation wasn't finished.
So far, the U.S. economy hasn't slipped into recession, despite the impact of higher interest rates, and forecasters are more optimistic about the possibility of continued growth than they were earlier this year. Moody's puts the odds of a recession by the end of the year at 33%, down from 50% a few months ago.
Other observers are less optimistic about avoiding a recession and posit that a slowdown will persuade the Fed to lower interest rates, perhaps sooner rather than later.
"The magnitude of the slowdown we're seeing across the board tells us that we'll probably still be hitting recession around year-end, so they'll be cutting rates by then," J.P. Morgan Asset Management Chief Investment Manager Bob Michele said in an interview with Bloomberg Television.
Other forecasts put reductions sometime in the first half of 2024, especially as inflation eases toward the Fed's target.
UPDATE, SEPT. 20, 4:41 P.M. ET: Comments from Federal Reserve Chair Jerome Powell and Ashland Greene Capital CEO Shakti C'Ganti have been added.