After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% at their meeting last Wednesday. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line? Despite holding the Fed Funds Rate steady last week, there were signs that the Fed may keep rates higher for longer. Projections in the Fed’s dot plot show one more hike is ahead this year. Plus, there are indications that we’ll only see two rate cuts in 2024, down from four previously.

Fed Chair Jerome Powell noted that the Fed remains “strongly committed to returning inflation to our 2 percent objective.” The Fed will be assessing incoming data ahead of their next meeting and rate decision on November 1, especially inflation and labor market figures. Yet, with recent job growth numbers being revised lower in subsequent reports (for example, June’s originally reported number of 209,000 new jobs has been cut in half to just 105,000 jobs), this data may not provide the most accurate picture. 

The Fed expects stronger economic growth, as they revised their 2023 GDP forecast upward to 2.1% (more than double their June estimate of 1%). But this is in sharp contrast to the latest Leading Economic Indicators (LEI) from the Conference Board, which was down 0.4% last month, marking the seventeenth straight month of declines. This indicator (along with yield curve inversions, near record high credit card debt, and the lag effect of the Fed’s rate hikes) shows why a recession may not be off the table just yet.

While a recession is not a great thing for the economy, one positive aspect is that periods of recession are always coupled with lower interest rates.