US Federal Reserve: What to expect ahead of the US central bank meeting next week? What do economists say?
US Federal Reserve: Will it halt interest rate hikes?
According to the US Central Bank’s previous meeting in March this year, the bank had indicated plans to halt interest rate hikes over rising recession fears. Furthermore, In May, Jerome Powell, the Chair of the Federal Reserve, indicated that the U.S. central bank could potentially halt its series of interest rate increases.
The central bank has consistently hiked interest rates since March 2022 to curb inflation pressure, however, the incessant rate hikes have damaged the business of regional banks and also pushed recession fears higher.
US Federal Reserve: Historic Interest Rates
|Meeting Date||Decision||Interest Rate Range|
|May 2022||+50 basis points||0.75-1 percent|
|June 2022||+75 basis points||1.50-1.75 percent|
|July 2022||+75 basis points||2.25-2.5 percent|
|September 2022||+75 basis points||3-3.25 percent|
|November 2022||+75 basis points||3.75-4 percent|
|December 2022||+50 basis points||4.25-4.5 percent|
|January 2023||+25 basis points||4.5-4.75 percent|
|March 2023||+25 basis points||4.75-5 percent|
|May 2023||+25 basis points||5-5.25 percent|
US Interest Rates: Link between inflation and interest rates
The Fed’s decision to reduce the size of its latest rate hike follows last month’s economic data showing US inflation easing to 6%, down from 6.5% recorded in January. Even as inflation has cooled, it is still quite higher than the 2% inflation rate targeted by the US central bank.
The world continues to struggle with inflationary pressures brought on by a harmful concoction of economic forces. These include escalating energy costs, which are made worse by the conflict in Ukraine, as well as a number of supply chain constraints brought on by the Covid-19 outbreak.
The incessant increase in interest rates over the past one year also was a key cause of the recent banking system fallout. Silicon Valley Bank, Signature Bank and First Republic Bank all crashed majorly due to an asset mismatch caused due to higher interest rates.
US Interest Rates: What do economists expect?
According to a poll of economists done by Reuters, More than 90% of economists, 78 of 86, said the policy-setting Federal Open Market Committee would hold its federal funds rate at 5.00%-5.25% at the end of its meeting next week. The remaining eight expect a 25-basis-point rise.
More than one-third of respondents in the poll, 32 of 86, said the US Central Bank will hike interest rates at least once more this year and just over 25% of economists in the poll, 23 of 86, forecast at least one Fed rate cut by the end of 2023.
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