July 12, 2024

Are More Interest Rate Hikes in Store for the Federal Reserve?

Federal Reserve Chair Jerome Powell (Al Drago / Bloomberg via Getty / File / Getty Images)

Money experts say no more interest rate hikes for now, but surprises may be on the horizon!

According to a Federal Reserve Bank of New York survey, we’re in for a stable financial ride. No interest rate hikes are expected after the September Federal Reserve meeting. In fact, they’re even contemplating cutting rates in April 2024.

But hold on, some people are on different pages. Some market players may see a small cut as early as March 2024.

The New York Fed has its eyes on a 4% federal funds rate, but the market experts think it might be closer to 3.88%. To give you some perspective, the recent rate hike pushed the federal funds rate from 5.25% to 5.5%, the highest it’s been in 22 years!

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From a high of 9.1% in June 2022, inflation is settling. Still, the Fed isn’t taking chances. They’ve been raising interest rates to grip the situation tightly. And they’re not easing until they’re sure inflation’s back in its 2% comfort zone.”

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Fed Chairman Jerome Powell testified to the Senate Banking Committee earlier this year. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Refrain from counting out future rate hikes, say officials.

Michelle Bowman, a Fed Governor, believes more rate bumps might be necessary to steer inflation towards the Fed’s 2% goal. She shared this insight at an event with the Kansas Bankers Association in Colorado.

“I will be looking for consistent evidence that inflation is on a meaningful path toward our 2% goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level,” Bowman continued. “I will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening.”

As per the Bureau of Labor Statistics, July saw 187,000 new jobs added, a slowdown from before.

While the gain is solid, it’s below the past year’s average monthly increase of 312,000 jobs. Unemployment stayed at 3.5% in July, showing consistency over recent months. Since March 2022, the jobless rate has danced between 3.4% and 3.7%.

“Job growth is weakening, and wage growth is holding steady, but both are still above the pace that would be consistent with the Federal Reserve’s inflation target,” Joel Kan, Mortgage Bankers Association (MBA) vice president and deputy chief economist, said in a statement.

“The incoming economic data continue to convey conflicting signals about the economy’s strength,” Kan said. “Indicators of manufacturing and service sector health remain lackluster, measures of inflation have moved lower, while GDP growth in the second quarter was stronger than expected and consumer spending remains resilient.”

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