The next FOMC meeting will not be a nonevent, but mostly an opportunity to set up expectations for monetary policy in the coming year.

Going into the January 30-31 FOMC meeting, the consensus is for no change in the fed funds rate target of 5.25 to 5.50 percent. The rate will be the same as that set back in July 2023. What markets will be waiting for is any change in the tone of the FOMC statement when released at 14:00 ET on Wednesday. Although it seems that the FOMC has reached the peak of the current rate cycle, it is unlikely that Fed policymakers are going to signal anything more dovish than that this is indeed the apparent peak, but they are still prepared to hike again if appropriate.

The statement should see some adjustments based on slower GDP growth in the advance report for the fourth quarter, but then again it was well above expectations. Anticipate that Fed policymakers are going to have their collective eye on what is happening in the first quarter 2024.

The data for inflation are a bit harder to interpret. Although for the major inflation indicators the pace of inflation is half of what it was a year ago, the core measures have not improved as much and suggest that getting inflation under control – particularly in the services sector – remains an extended slog.

Nevertheless, inflation expectations have cooled and reflect confidence that the work of taming inflation is succeeding and that the Fed will get price stability back on target over time. However, that time is at least a year or two out.

This is the first meeting of the year and will see the rotation of voters among the district bank presidents. Voting presidents in 2024 are New York’s John Williams (NY permanent voter, NY FOMC vice chair), Cleveland’s Loretta Mester, Richmond’s Thomas Barken, Atlanta’s Raphael Bostic, and San Francisco’s Mary Daly. Despite the slightly more dovish leanings of the voters, do not expect any significant shift away from maintaining restrictive monetary policy until inflation is sustainably near the two percent flexible average inflation target.

There are other housekeeping tasks that the FOMC performs at the January meeting. If it decides on any changes to its statement on longer-run goals and monetary policy strategy, this is where it will take place. If it gets an edit, these would likely be minor tweaks.

There will be no update to the summary of economic projections (SEP) until the March 19-20 meeting. Fedwatchers will have to rely on what the statement says and then what Chair Jerome Powell says at his press conference at 14:30 ET.

The FOMC will receive the January senior loan officer opinion survey at the meeting. The assessment of changes in lending standards and terms, and demand for loans from businesses and households will feed into how policymakers view the impact of past rate hikes – all 525 basis points since March 2022. The special questions may also provide insight on underlying conditions for lenders and borrowers, and the health of financial institutions.

Chair Powell’s press briefing may offer a bit of a preview for the semiannual monetary policy testimony that will take place in February, at least insofar as it relates to monetary. This year the first day of testimony will be before the House Financial Services Committee, then the Senate Banking Committee. The respective committee members are probably going to spend little time on monetary policy except to berate the Fed for endangering jobs and/or reducing household spending power for working people through raising rates. Instead, there will be many questions regarding fiscal policy – which Powell will not answer except in the most general terms – and a focus on social issues – which monetary policy can only address obliquely.

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