Federal Reserve’s Rate Hike Resumption: What it Means for the Economy


The Federal Reserve is almost certain to increase interest rates by another 0.25% this week after taking a break in June, and Fed Chief Jay Powell is expected to leave the door open to more rate hikes later this year.

With an increase of 0.25%, the federal funds rate, the central bank’s benchmark interest rate, would reach a 22-year high and represent the 11th rate increase in about a year and a half.

The Fed’s two-day policy meeting will begin on Tuesday, and the decision on monetary policy is anticipated to be made at 2:00 p.m. Wednesday, ET. Powell will address the media on 30.minutes later.

According to CME Group data, traders give a 99.8% chance that the Fed will increase interest rates on Wednesday by 0.25%. This week’s decision won’t be accompanied by revised economic forecasts from central bank officials, unlike the Fed’s announcement in June. 

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Impact on Markets and Economy

Similar projections from last month indicated that two additional rate increases would be required in 2023 in order to return inflation to the Fed’s 2% target. In recent weeks, Fed officials have repeated predictions that this week’s rate change will mark the start of a two-step process to raise rates to their peak.

In a speech on July 13, Fed governor Chris Waller stated, “Since the June meeting, with another month of data to assess lending conditions, I am more confident that the banking turmoil is not going to result in a material problem for the economy, and I see no reason why the first of two hikes should not occur at our meeting later this month.”

Based on the most recent economic data, Powell has also recently argued for more rate increases. Powell stated at the end of June during a panel discussion in Portugal, “It tells us that although policy is restrictive, it may not be restrictive enough. 

The results from the previous quarter show stronger than anticipated growth, a tighter than anticipated labor market, and higher than predicted inflation.

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Source: YAHOO

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