Federal Reserve Signals More Hikes After Current Pause
On June 14, 2023, the Federal Reserve announced its decision to put a temporary hold on its ongoing interest rate hiking campaign, a campaign that had seen ten consecutive rate increases since March 2022. The objective behind these hikes was to temper the US economy and address a stubbornly high inflation rate, which continues to be double the Fed's target.
The unanimous decision to pause was taken to allow for a comprehensive assessment of the impact of previous rate hikes on the economy. Despite this pause, it's clear that the Federal Reserve anticipates further rate hikes this year.
Projections indicate two more quarter-point moves before the end of 2023, leading to an expected federal funds rate of 5.6% by year-end. However, it's worth noting that opinions among the Federal Open Market Committee members vary, with some predicting fewer or no hikes, and others forecasting up to four more.
Interestingly, despite these projected hikes, the Federal Reserve's long-term outlook suggests a potential for future rate cuts. It anticipates a federal funds rate of 2.5% in the long run, which could mean a full percentage point cut in 2024 if the current year's outlook holds.
United States Fed Funds Rate over the last 5 years. (Source: tradingeconomics.com)
The decision to pause rate hikes comes with revised economic growth and unemployment projections. The Fed now expects a 1% GDP growth and a 4.1% unemployment rate by year-end, up from the earlier 0.4% GDP growth and 4.5% unemployment rate projections made in March.
On the topic of inflation, the Fed has adjusted its projections to 3.9% for core inflation (excluding food and energy) and 3.2% for headline inflation. These changes are in response to recent data showing a slowing rate of inflation, albeit consumers continue to face high costs for many items.
In addition, the Federal Reserve stated, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.”
The Committee remains focused on returning inflation to its 2% objective.
The Federal Reserve’s next FOMC statement is scheduled for Wednesday, July 26, 2023.
As always, if you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com
Market Updates
Our market commentary breaks down the latest business, financial and money news. If you’d like to receive all of our market update emails, send us an email by clicking the subscribe button. If you found this content helpful, share it widely!