Experts suggest that the Fed’s approach may now follow a pattern of “Pause, hike, pause,” indicating further rate adjustments may be on the horizon.
Fed Raises Interest Rates, marking the 11th increase since March 2022
Bill Adams expects a modest quarter percentage point rise in the federal funds rate, bringing it to a target range of 5.25% to 5.5%. The Fed raises interest rates since March 2022 but paused in June. Adams believes the Fed will likely signal another potential pause in its meeting scheduled for September.
The Fed raises interest rates hikes have contributed to inflation slowing down significantly, dropping to 3% year-over-year in June from a high of 9.1% in June 2022. The consumer price index increased by 4% year-over-year in May, with a monthly inflation rise of 0.2% in June. Certain factors, such as declining prices for airline tickets, used cars and trucks, and household furniture, contributed to this cooling down of inflation.
Despite the slowdown in inflation, core inflation, which excludes food and energy, remains relatively high
Federal Reserve Chairman Jerome Powell aims to control inflation through further rate hikes, and experts anticipate the possibility of additional Fed raises interest rates in the second half of 2023 unless inflation and wage growth decrease substantially.
Diane Swonk, chief economist at KPMG, believes that Powell has managed to align the Federal Reserve policy committee and reduce dissent regarding inflation-fighting strategies. She expects another Fed raises interest rates to take place this week.
The Fed’s balancing act between Fed raises interest rates enough to engineer a soft economic landing without causing a serious slump remains a challenge. However, given current economic conditions, experts feel that achieving a soft landing is more attainable, and the Fed may be emboldened to maintain its course until inflation returns to its 2% target. Nonetheless, caution is advised, as the Fed aims to avoid being deceived by recent inflation deceleration and prematurely declare victory.