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In this issue

  • Forecast: Will the Fed raise its interest rate target at its December meeting?
  • (Make a forecast with one click at the bottom of this email.)

Is the Fed done for the year?

The Fed opted to leave interest rates unchanged this past week, but made it clear that it is not necessarily done hiking.

The logic for a pause is that interest rates take time to do their job—the unprecedented hikes of the past year are still making their way through the economy and so the Fed wants to wait and see what effect they have.

On the other hand, the labor market remains tight and consumer spending is through the roof. The economy is still running hot.

So what happens in December? Will the pause continue, or will the Fed decide it needs to raise interest rates yet again?

Strong economic growth is not, on its own, cause for higher interest rates, as Goldman Sachs explained in its coverage of the Fed decision:

“Powell clarified that above-potential growth on its own would not be enough to warrant another rate hike. Instead, the FOMC would look at the broader picture and would need to see that above-potential growth was endangering labor market rebalancing and progress toward the inflation goal. Powell also noted that short-run potential growth is currently higher than usual because labor force growth is elevated, which implies a higher bar for growth to be above potential at the moment.”

Even so, consumer spending probably has to slow down to keep inflation falling toward the Fed’s 2% goal.

Then there’s the wildcard scenario. Today’s inflation is driven less by obvious supply shortages than was the case in 2020, but one supply shock still looms. What if the war in Gaza expands into a regional conflict, and oil prices spike? That’s the nightmare scenario for the Fed because it would pull them in two directions at once. Growth would slow and inflation would rise. My guess is that in such a scenario dovishness would prevail and the Fed would hold rates steady or even cut them.

That scenario remains unlikely, though. The main question for December is whether current interest rates are enough to get consumers to slow their spending.


Will the Fed raise its interest rate target at its December meeting?

​Very likely (~90% chance)

Likely (~70%)

Uncertain (~50%)

Unlikely (~30%)

Very unlikely (~10%)

Bonus trivia: Jerome Powell is known to be a big fan of which band?

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Deadline: Make a forecast by 9am ET Nov. 7.

Resolution criteria: We'll follow Good Judgment's resolution on this. The exact question is: "At close of business on 13 December 2023, will the upper limit of the Federal Reserve's target range for the federal funds rate be higher than it was at close of business on 1 November 2023?"


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