What to Know for the Fed’s Final 2023 Interest Rate Decision

Pause or Proceed?

For the last time this year, it’s Fed week. Market participants expect the central bank to leave interest rates unchanged again, as conviction is growing the the policymakers around Fed Chairman Jerome Powell are done raising rates.

In an effort to curb pandemic-era inflation, the Federal Reserve enacted a series of rate hikes starting in March 2022, raising the federal funds rate to a level not seen in decades. As intended, borrowing costs rose across the board, making everything from buying a home to carrying a credit card balance more expensive for consumers.

Now inflation is cooling, and the Fed has held rates steady, stirring hopes that its campaign might be nearing its end.

Hopes for a Rate Hike Hiatus

Markets are nearly taking it as fact that rates will be kept steady at 5.25%-5.5% this week, according to the CME FedWatch Tool .

This expectation was fueled by recent inflation data showing a promising cooling trend. Even though the rate of price increases is still higher than the Fed’s 2% target rate, the worst of it, seems to be behind us.

But so far, the Fed has not been ready to officially say so. Investors and economists will likely hang on every last of Powell’s words during the December press conference, looking for clues as to what may come next.

All Eyes on 2024

Many analysts are penciling rate cuts into their forecasts for next year. Markets would likely cheer such a decision as lower rates mean cheaper borrowing costs for companies. After years of rising prices paired with high interest rates on everything from cars to mortgages, consumers might be excited by the advent of lower rates as well.

But if the Fed cuts rates, it could also mean that the economy needs a boost, and that’s really not a reason to celebrate.

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