US central bank chairman Jerome Powell has said that there will be two more rate hikes in 2023. Bank of America expects these hikes to happen in July and September.
On Wednesday, June 14, the US Federal Reserve (Fed) decided to put an end to its unprecedented rate hike cycle. If not, it would have been the 11th consecutive rate hike by the US central bank.
But during this two-day meeting, the Federal Open Market Committee decided to hold off on rate hikes as the inflation numbers for the month of May 2023 came down slightly. However, the Fed forecast two 25 basis point rate hikes later this year.
Speaking At the news conference after the FOMC meeting, Fed Chair Jerome Powell Said:
“We have raised our policy interest rate by five percentage points, and we continue to reduce our security holdings at a rapid pace. We’ve covered a lot of ground and the full impact of our tightening is yet to be felt.
The prospect of future rate hikes rattled US equities, with the top three indices ending on a nearly flat note during Wednesday’s trading session. Central bankers have announced they will observe the effects of recent policy actions for an additional six weeks as the Federal Reserve combats inflation, which has shown some positive but uneven signs recently. As a result, the Fed’s key interest rate will remain within its target range of 5% to 5.25%.
In a post-FOMC meeting statement, the Fed said: “Keeping the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy.”
When will the Fed announce the next rate hike?
The next FOMC meeting will be on July 25-26. Fed Chairman Jerome Powell has not yet decided whether the next rate hike will happen in July. The Fed’s decision was surprising because of the “dot plot,” which shows individual members of the FOMC’s expectations for future interest rates.
In the dot plot, the dots representing the expectations moved up significantly. This pushed the average expected funds rate to 5.6% by the end of 2023. If the FOMC continues to raise rates in quarter-point increments, it suggests there could be two more hikes in the remaining four meetings this year. According to a Bank of America note after the meeting, they expect the Fed to raise rates in July and September.
Although FOMC members unanimously approved Wednesday’s move, there has been considerable disagreement among them. Two members of the committee believe there will be no interest rate hike this year, while four members expect one hike and nine members, who are half of the committee, expect two hikes. Additionally, two more members predict a third increase, and one member predicts four more increases, assuming each increase is a quarter-point increase.
Committee members have also adjusted their forecasts for future years. They now predict that the fed funds rate will reach 4.6% in 2024 and 3.4% in 2025. These forecasts have increased from previous forecasts in March, which were 4.3% for 2024 and 3.1% for 2025, according to the Economic Summary. Estimate.
However, forecasts for future years suggest that the Fed could begin lowering interest rates by a full percentage point in 2024 if the current outlook for this year remains unchanged. The long-term expectation for the fed funds rate remains at 2.5%.
Bhushan is passionate about Fintech and has a good grasp of understanding the financial markets. His interest in economics and finance drew his attention to the newly emerging blockchain technology and cryptocurrency markets. He is in the process of continuous learning and keeps motivating himself by sharing his acquired knowledge. In his spare time he reads thriller fiction novels and occasionally explores his culinary skills.
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