What to Watch at the Fed’s September Meeting

Federal Reserve officials are expected to leave interest rates unchanged at their meeting on Wednesday, buying themselves more time to assess whether borrowing costs are high enough to weigh down the economy and wrestle inflation under control.

But investors are likely to focus less on what policymakers do on Wednesday and more on what they say about the future. Wall Street will closely watch whether Fed policymakers still expect to make another interest rate increase before the end of the year, or whether they are edging closer to the next phase in their fight against rapid inflation.

Central bankers have already raised interest rates to a range of 5.25 to 5.5 percent, the highest level in 22 years. By making it more expensive to borrow to buy a house or expand a business, they are trying to slow demand across the economy, making it harder for companies to charge more without losing customers and slowing price increases.

Officials predicted in their last quarterly economic forecast, released in June, that they were likely to make one more rate increase before the end of 2023. Investors will be keenly focused on whether they continue to predict one final rate move in their fresh projections on Wednesday, along with a few other key details.

Here’s what to watch when the Fed releases its latest policy decision and economic forecast at 2 p.m. and when Jerome H. Powell, the chair, holds a news conference at 2:30 p.m.

The ‘dots’ will be in focus.

The Fed’s economic projections are often called “dots” or the “dot plot,” because they show what central bankers expect to happen with interest rates as a series of individual, anonymous blue dots arrayed on a chart.

Many economists expect those dots to creep lower for 2023. At least a few officials might stop expecting another quarter-point rate move this year, predicting instead that interest rates have already reached their peak.

The key question is whether enough officials revise their forecasts so that a majority of policymakers no longer see another rate increase as necessary.

While it is possible that the dots will suggest that the Fed is done lifting rates, most analysts are betting that there’s a better chance that a majority of officials will continue to forecast at least one more move, if only to keep their options open at an uncertain economic moment.

“In this current environment, declaring victory too early could be problematic for them,” said Antúlio Bomfim, head of global macro at Northern Trust Asset Management and a former adviser to Mr. Powell.

There are also questions about how many rate cuts the Fed will predict next year. The bulk of officials had penciled in at least four cuts as of their last forecast, which had interest rates ending this year around 5.6 percent and finishing 2024 around 4.6 percent. If that’s revised to show rates falling further, it would be a sign that policymakers expect a faster victory over inflation or a worse economic slowdown ahead. If, on the other hand, officials expect to lower rates by less in 2024, it could be a signal that policymakers expect inflation to prove more stubborn.

Fed officials will release fresh economic forecasts.

The world will also get a fresh look at exactly what policymakers are expecting out of inflation and the broader economy through 2026: The economic projections include forecasts for price increases, unemployment and overall growth.

Those forecasts could be in for substantial revision this time around. Unemployment has risen somewhat in recent months, inflation has fallen a bit more quickly than anticipated and consumer spending, the primary driver of growth in America, has been surprisingly resilient.

That said, a few emerging risks threaten to prop inflation up, including a jump in gas prices that has worsened this week, the threat of automobile supply chain disruptions from the United Auto Workers strike and the possibility of shipping disruptions as a drought causes a bottleneck in the Panama Canal.

The Fed chair’s news conference will be key.

Mr. Powell’s remarks and answers typically flesh out the Fed’s statement and forecasts and explain whatever message officials are trying to convey.

Economists generally expect Mr. Powell to underscore what an uncertain moment this is for the economy. There are hopeful signs that inflation is meaningfully fading even without a painful economic pullback, but big risks loom, including the possibility of a government shutdown that could rattle consumer confidence.

And some expect Mr. Powell to note that the economy might need to slow further for the Fed to believe that inflation will come fully under control, returning to the Fed’s 2 percent goal.

“I doubt they are expecting, as their most likely forecast, that they’re going to get an immaculate disinflation,” said William English, a former Fed economist who is now a professor in the practice of finance at Yale. “I think that is still their base case: The economy really does have to have a period of quite slow growth.”

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