Home Blog The Federal Reserve Plan to Raise Interest Rates in 2023

The Federal Reserve Plan to Raise Interest Rates in 2023

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ill the Fed raise interest rates again in 2023?
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Crucial Takeaways

The Federal Reserve’s Plan to Raise Interest Rates in 2023

Market analysts expect that rate hikes will be completed before the end of the year.

Even after hiking interest rates to their highest level since 2001, the Federal Reserve isn’t ready to call it quits on its most ferocious inflation struggle in four decades.

However, when interest rates rise, it becomes more difficult to make a decision.

The rate-setting Federal Open Market Committee (FOMC) hiked interest rates another quarter point in July to a new target range of 5.25–5.5 percent, the 11th rise in 12 meetings.

 

Best CD Rates in September 2023

The Fed is making headway in stabilising prices, but the news isn’t all positive. In June, inflation climbed 3% year over year, the smallest rate since August 2021. However, the aggregate metric obscures how stubborn other price hikes are. Some essential household commodities, such as auto repair services, bread, and pet food, are still increasing at a double-digit rate. Rents and the cost of dining out at restaurants continue to exceed the Fed’s 2% price objective. Inflation excluding food and energy is up 4.8 percent over the previous year.

According to Fed Chair Jerome Powell, people are most affected by food and energy inflation, but those so-called “core” prices tend to represent the broader trend of where inflation stops.

Future rate hikes still on the table

Today’s quarter-point gain was generally anticipated. The issue now is whether the Fed will raise rates again at its September meeting. Federal Reserve Chair Jerome Powell stated that there would be plenty of evidence to inform the decision between now and then, including two employment reports and two inflation reports. In terms of reaching their core aim of price stability, Powell remarked that they still had “a long way to go. Nonetheless, he recognised the delays in economic responses to policy changes and remarked that “the full effects of our tightening have yet to be felt.”

Waning recession fears

The tight labour market has hampered the efficacy of the Fed’s policy operations. A higher labour market participation rate, particularly among those aged 25 to 54, has helped to alleviate fears of a harsh landing. 6 This has helped to mitigate the impact of people who have permanently departed the labour force, which has been particularly noticeable in the 55+ age group. 7 While Powell restated his objective for a broad labour market cooling, he believes that inflation may be managed without a substantial number of job losses.
Furthermore, easing supply chain limitations and reducing consumer demand are assisting in lowering inflation. In June, the year-to-date inflation rate was 3%.

References

Powell emphasised once more that the committee wants inflation to be “credibly” and “sustainably” lower. However, he also stated that the FOMC will cease hiking rates “long before” they hit 2% since an extremely restrictive policy for an extended period of time might harm the economy. He believes the central bank will not attain its 2% objective until 2025.
Snyder also discussed the housing sector in relation to the Consumer Price Index (CPI) and the Fed’s policies, as well as how Powell appears to be more focused on labour markets.

Fed’s future moves depend on inflation, employment — and banking stress

The Fed’s decision to continue raising interest rates would be influenced by inflation.

In June, Fed policymakers dramatically raised their economic forecasts. According to the Department of Commerce’s personal consumption expenditures index, the median estimate among authorities is 3.9 percent core inflation. This is up from a 3.6 percent forecast in March.

The US economy has proven to be far more resilient than many predicted when the Fed first began raising interest rates. Unemployment is at a half-century low of 3.6 percent, the same level it was in March 2022, when the Fed first began hiking interest rates. Employers have also added at least 200,000 new positions every month since December 2020.

 

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