Fed Expected To Keep Rates Unchanged In December

The Federal Reserve’s next interest rate decision comes on December 13, and rates are likely to remain unchanged at 5.25% to 5.5%. That’s because with October’s Consumer Price Index inflation report, inflation continues to move lower and rates are already at restrictive levels. Therefore, the Fed is perhaps inclined to wait for elevated interest rates to do the work in bringing down inflation. That said, some Fed officials have stated rates could move higher from here, even though market forecasts disagree.

October’s CPI Report

October’s CPI report saw headline inflation cool to a 3.2% annual rate as energy prices fell. However, stripping out food and energy the underlying rate is 4.0%. Importantly, shelter costs rose more slowly than many months of 2023, which is important given the category’s weight in the series. These shelter cost trends may reassure the Fed. Still, the inflation rate, though decelerating for much of 2023, is still well above the Fed’s 2% annual inflation target, and services inflation remains fairly high. As such the Fed officials have stated that they have no plans to cut rates in the near term.