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The Fed Pauses But Expects One More Hike

The Federal Reserve held interest rates steady in September but still expects another raise by year end.

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Key Takeaways

  • As expected, the Federal Open Market Committee(FOMC) held the federal funds target rate range steady at 5.25% to 5.50%, the highest level in 22 years.
  • The FOMC indicated it expects one more 25-basis-pointhike this year and fewer cuts than anticipated in 2024.
  • This was the second time this year that the FOMC paused its current rate-hiking cycle to assess whether rate hikes over the past 18 months have been enough to tame inflation and cool the economy.
  • The Fed’s economic projections showed a sharp increase in economic growth for 2023.

At their September meeting, Federal Open Market Committee (FOMC) members unanimously agreed to take a second breather from their rate-hiking cycle, holding the fed funds rate range steady at 5.25% to 5.50%, the highest level in 22 years.

FOMC expectations are for one more 25-basis-point hike this year (which would be the 12th rate hike since March 2022) and two rate cuts in 2024, a number less than previously predicted. But the majority of the market doesn’t buy the Fed will raise rates again this year. According to the CME Fed Watch Tool, market odds for another hike in 2023 are 28% for the November meeting and 46% for the December meeting.

Federal Reserve Chair Jerome Powell said any decision on interest-rate hikes or cuts will continue to be based on a variety of economic factors, including whether inflation is headed toward the Fed’s 2% target. Powell indicated there’s “a long way to go” before the Fed means its inflation goal.

“We want to see convincing evidence really that we have reached the appropriate level [of inflation]. And we’re seeing progress, and we welcome that,” Chair Powell said at his post-meeting press conference. “But, you know, we need to see more progress before we’ll be willing to reach that conclusion.”

The Fed also released its latest economic projections that show economic growth continuing. Real GDP estimates for 2023 increased sharply from 1% to 2.1%, and unemployment projections dropped from4.1% to 3.8%.

The FOMC’s September statement contained only one notable change from July:

Source: FOMC as of 9/20/23.

Market Reaction

After the Fed announcement, the 10-year Treasury ended the day lower at 4.35%; short- and long-term rates were mixed with the curve flattening to end the day.

Source: U.S. Department of the Treasury as of 9/20/23.
10-Year Treasury Yield Over the Past 12 Months
Source: FRED as of 9/20/23. U.S. Department of the Treasury as of 9/20/23.

Equities closed lower on the final day of the FOMC meeting. The Dow Jones Industrial Average finished down -0.22% for the day, and the S&P 500 Index closed slightly lower at -0.94%, despite a small tick up at the start of Powell’s news conference.

In Conclusion

One of the few major surprises to come out of the FOMC’s September meeting was the Fed revising real GDP growth in2023 sharply upward. And the economy’s resiliency has allowed the Fed to move more cautiously now when it comes to raising rates. While many headwinds remain—primarily elevated inflation and its causes—Chair Powell continues to believe that the Fed can bring the economy in for a soft landing.

“I’ve always thought that the soft landing was a plausible outcome — that there was a path,” Chair Powell said.

He added: “A soft landing is a primary objective. That’s what we’ve been trying to achieve, for all this time.”


One basis point is equal to 0.01%.

The Dow Jones Industrial Average Index (DJIA) tracks the share price of the top 30 large, publicly-owned U.S. companies which is often used as an indicator of the overall condition of the U.S. stock market.

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Personal Consumption Expenditures (PCE) refers to a measure imputed household expenditures defined for a period of time.

The S&P 500 index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market.

Any performance data quoted represent past performance, which does not guarantee future results. Index performance is not indicative of any fund’s performance. Indexes are unmanaged and it is not possible to invest directly in an index. For current standardized performance of the funds, please visit www.AristotleFunds.com.

The views expressed are as of the publication date and are presented for informational purposes only. These views should not be considered as investment advice, an endorsement of any security, mutual fund, sector or index, or to predict performance of any investment or market. Any forward-looking statements are not guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are subject to change without notice as market and other conditions warrant.

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Aristotle Investment Services is the administrator for Aristotle Funds. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Aristotle Investment Services LLC (AIS), a wholly owned subsidiary of Aristotle Capital Management, is the investment adviser to the Aristotle Funds. AIS also does business under the name Aristotle Pacific Capital and manages certain funds under that name.

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