Fed expected to raise rates again, perhaps for the last time this cycle
Task is to convince markets that central bank won’t rush to the rescue in any recession
Federal Reserve Chair Jerome Powell arrives for the G-20 Finance Ministers and Central Bank Governors meeting during the World Bank Group and the International Monetary Fund Spring Meetings in Washington, DC earlier this month.
Mandel Ngan/AFP/Getty Images
The Federal Reserve is expected to raise its benchmark interest rate by another quarter of one percentage point on Wednesday, in what could very well be the last rate hike of this cycle, economists said.
The 25 basis point move would push the Fed’s benchmark interest rate to a range of 5%-5.25%. That is seen by many as high enough to slow the economy and cool inflation.
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The Federal Reserve is expected to raise interest rates once more this December, possibly marking the last rate hike of the current rate cycle.
The Fed has raised rates nine times since December 2015, and the most recent increase was in September 2018. Since then, Fed Chairman Jerome Powell has repeatedly said that the economy does not become overheated, a sign that another increase has been taken off the table.
However, the latest economic data suggests that the U.S. economy is still growing at a steady pace. The Labor Department reported that the unemployment rate fell to its lowest level since 1969, while consumer spending has also risen and inflation is slowly ticking higher.
The steady economic performance, combined with rising inflation and a strong labor market, could provide sufficient conditions to raise rates again. According to recent data from the CME Group’s FedWatch, there is a 94% chance that the Fed will raise rates by at least 0.25 basis points in December.
Analysts are split on whether the Fed will raise rates in subsequent meetings. But, with the current rate cycle expected to end soon, the Fed could be approaching a pause, if not a reversal.
While the path of future rate hikes may remain uncertain, one thing is certain: any rate hikes by the Fed in the coming months will have implications for the U.S. economy. Investors should keep an eye on the rate decisions to prepare accordingly, as the next few months could reveal the extent of this current rate cycle.
