Fed sets up 2024 for rates holding high

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news all eyes have been on Washington DC and the US Fed.</p><p>As expected, the American central bank's September policy review was a "hawkish hold". It kept its policy rate at 5.25% following a +25 bps hike in July but signaled there could be one more hike this year. <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230920a.htm" target="_blank"><strong>They pointed out</strong></a> that their labour market strength isn't wavering and inflation risks remain high. Tighter credit conditions haven't dampened activity to the extent they need and the remain "highly attentive to inflation risks".</p><p>In the <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf" target="_blank"><strong>economic projections</strong></a> they released with today's decision, the 'dot-plot' shows most voting members see a higher rate by the end of the year (12 of 19 whose projections were plotted). Essentially they are signaling that rates will stay elevated well into 2024 with fewer projected cuts.</p><p>Market reactions included the USD rising +20 bps vs the NZD, the UST 10yr benchmark was little-changed having fully priced in the outcome, it seems. Equities (the S&P500) fell -0.3%. So overall, markets have taken this review in its stride.</p><p>Somewhat surprisingly, American <a href="https://www.mba.org/news-and-research/newsroom/news/2023/09/20/mortgage-applications-increase-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications</strong></a> jumped +5.4% last week, the first rise in three weeks, and the biggest since mid-June. And this was despite benchmark mortgage interest rates rising again, to 7.31% plus points.</p><p>In Japan, <a href="https://www.boj.or.jp/en/statistics/sj/sjexp.pdf" target="_blank"><strong>ho