Financial and Monetary Systems

Will the Fed cut rates in 2023?

The Federal Reserve building in Washington, US.

Not a single member of the Federal Open Market Committee expects rate cuts in 2023. Image: REUTERS/Joshua Roberts

Felix Richter
Data Journalist, Statista
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  • Some observers saw the US Federal Reserve's recent decision to dial down the pace of interest rate hikes as a sign of it adopting less hawkish policy.
  • However, it now appears likely that the Fed is going to keep rates elevated for the foreseeable future.
  • Not a single member of the Federal Open Market Committee expects rate cuts in 2023.

While the Fed's decision to dial back the tempo of its latest rate hike to 50 basis points after four consecutive 75 basis point hikes was (mis)interpreted as a first step towards a less hawkish policy stance by some observers, the minutes of the December FOMC meeting, released on Wednesday, once again made clear that the chances of such a pivot are very slim. If anything, the meeting minutes confirmed that the Fed is going to keep interest rates elevated for the foreseeable future, as meeting participants explicitly warned against misinterpretation of the slowdown in its latest rate hike.

"A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path," the minutes read, warning that "an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability."

While it was always clear that the Fed was going to take its foot off the gas in terms of further rate hikes this year, those hoping for a complete reversal will likely have to wait a bit longer. According to the projections released in conjunction with the FOMC meeting held on December 13-14, not a single committee member is expecting rate cuts in 2023, while Fed officials are less united in their outlook on 2024 and beyond.

A graphic showing projections for the appropriate target level of federal funds from 2022 onwards.
Those hoping for a decrease in interest hikes will likely have to wait a bit longer. Image: Statista.

Beyond GDP: read the full transcript here

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