The Federal Reserve's upcoming rate-setting meeting, set to take place between October 31 and November 1, is expected to focus on the recent rise in open market rates and their potential impact on the robust economy. This development comes as the Federal Reserve's benchmark rate has remained unchanged since July, while open market rates, which influence business and consumer borrowing costs, have seen an increase.
The Federal Reserve initiated its rate-hike campaign in March 2022 to combat high inflation. The policy rate was raised from near zero to a range of 5.25% to 5.50% by July this year. Despite no further changes to the benchmark rate since then, open market rates have continued to climb.
According to public data from Fed surveys and the Fed's July Senior Loan Officer Opinion Survey (SLOOS), banks have responded by tightening loan standards. This has led to a decrease in demand, especially among businesses, resulting in slowed growth across all loan types.
Despite these trends, the economy has remained surprisingly resilient. Robust GDP growth, significant job gains, and strong consumer spending continue to put upward pressure on prices. However, Scott Anderson of BMO anticipates an economic slowdown due to these stringent credit conditions.
The upcoming Fed meeting is likely to provide further insights into these lending conditions through the October SLOOS. The focus will be on how these conditions might affect the robust economy moving forward, given the rising open market rates and tightened lending standards.
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