As expected, the Federal Open Market Committee raised the federal funds rate by 25 basis points today, to a range of 5.25% to 5.50%. After raising the rate at each meeting since early 2022, the FOMC kept the rate unchanged at its last meeting, in mid-June.

Higher interest rates are weighing on the US economy, with slower economic growth in recent quarters and softer job growth. Inflation has slowed but remains well above the central bank’s 2% objective. The FOMC will be watching to see if job growth softens to a more sustainable pace and inflation slows further.

PNC’s baseline forecast is for the FOMC to keep the fed funds rate in its current range into early 2024. But if the job market remains hot or if inflation doesn’t slow, the committee is likely to hike again later this year. 

Given the tightening in monetary policy to date, the most likely outcome is a mild recession in the US economy starting late this year or early next. But there is still a 40% probability that the US can avoid a near-term recession. Assuming there is a recession, the FOMC will start to cut the fed funds rate in early 2024 as inflation slows and the labor market deteriorates. 

Wednesday’s decision was approved unanimously.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.