BofA sheds light on the historical market responses to the Federal Reserve's decisions to hold rates in September and hike them in November, especially in the context of their recent update regarding the 2023 Fed outlook.

Key Points:

1. BofA's Revised 2023 Fed Outlook:

   • Economists at BofA have recently updated their predictions for 2023. They now anticipate the Fed to hold rates in September, followed by a rate hike in November.

2. Impact of September Rate Holds:

   • Historically, during Fed hiking cycles, September has been marked by elevated volatility. If expectations solidify around a rate hold decision for September 2023, it might provide relief and reduce market pressure for the upcoming month. This observation is based on empirical data from 1990 onwards.

3. Potential November Volatility:

   • A rate hike subsequent to the September rate hold could amplify market volatility in November. Such dynamics might cause increased market uncertainty and fluctuations.

4. Recent Market Dynamics Post-FOMC Decisions:

   • BofA points out that the market dynamics observed after the Fed's decision to hold rates in June 2023 and then hike them in July 2023 have mirrored the historical pattern. Markets have already displayed reactions in line with past behavior after such decisions.

Summary:

BofA's analysis suggests that, historically, a decision by the Federal Reserve to hold rates in September often eases market pressure for that month, especially considering the heightened volatility that September typically witnesses during Fed hiking cycles. However, if this hold is followed by a hike in November, the market might experience increased volatility. Recent market behaviors in 2023, after the Fed's June rate hold and July hike, have conformed to this historical trend.