The Federal Reserve is expected to raise interest rates by half a percentage point at the end of Wednesday’s two-day policy meeting.
While this rate hike is smaller than the 3/4 percentage point rate hikes announced at the last four Fed meetings, it’s no laughing matter.
That’s still double the Fed’s usual 1/4-point rate hike, which could hurt millions of American businesses and households by pushing up borrowing costs for homes, cars and other loans. It’s a pretty high rate hike.
The Federal Reserve’s expected action will raise the rate banks reciprocate for overnight borrowings to a range between 4.25% and 4.5%, the highest since 2007.
Federal Reserve Chairman Jerome Powell confirmed last month that rate hikes could be reduced, saying: “The time to slow down the pace of rate hikes may come shortly after the December meeting.” Stated.
The latest inflation, as measured by the Consumer Price Index, showed November’s year-on-year price gains slowing to 7.1%. However, inflation is unlikely to slow dramatically any time soon, partly due to continued pressure on wages amid a labor shortage. or possibly reversing the direction of rate hikes. Traders are largely pricing in his rate cut in the second half of 2023.
The Federal Reserve will end its rate hike regime by the second quarter of next year, analysts at JP Morgan said in a recent report. “With inflation continuing to weaken and fiscal policy likely to be put on hold, the Fed is likely to end its tightening cycle early in the year, and inflation could begin to ease by the end of 2023,” they said. Wrote. Analysts expect a rate hike of 1/2 percentage point in the first half of 2023.
However, the average period between peak interest rates and the first rate cut by the Fed is 11 months and could remain high through 2024, even if the central bank ceases to aggressively raise rates.
Investors will read the Fed’s economic outlook, Economic Outlook Brief. This will also be announced on Wednesday. And they’ll watch Chairman Powell’s press conference to get a clue as to what’s going to happen.
EY-Parthenon chief economist Gregory Daco said in a note to clients on Monday, “Fed Chairman Powell will keep policy at restrictive levels for some time to bring inflation down towards its 2% target. I expect they will argue that they need to keep it,” he said. “This will help push back current market pricing…Powell will underscore what the past has strongly cautioned against premature policy easing.”
The Federal Reserve has hiked its benchmark lending rate sixfold this year to discourage borrowing, cool the economy and lower historically high inflation that peaked at 9.1% over the summer. .
Even if rate hikes ease, interest rates will remain high and economists generally expect the US economy to withstand a recession next year.Powell said in November It is still possible that the economy will avoid a recession, but it is unlikely, he said.
In an interview aired on CBS on Sunday, Treasury Secretary Janet Yellen, Powell’s predecessor at the Fed, said there is a risk of a recession. It is certain.”
And the economy has endured aggressive Fed rate hikes so far. The job market is healthy, wages are growing, Americans are spending more, and GDP is strong. Business is good. Companies are significantly exceeding earnings expectations and reporting positive earnings results.
The Fed isn’t acting alone, it’s just one of nine central banks set to announce interest rates this week. As central banks around the world grapple with similar economic problems, gently landing on an ever-narrowing path between high inflation and recession is a global concern.
The European Central Bank, Bank of England and Swiss National Bank are expected to follow the U.S. on Thursday with a 0.5-point move of their own.Norway, Mexico, Taiwan, Colombia and the Philippines are also likely to raise borrowing costs this week. .
The Federal Reserve will announce its rate hike decision at 2pm Wednesday, followed by a press conference with the Chairman. Powell Time: 2:30 PM