Last week’s economic data increased investors’ confidence that the Federal Reserve will keep interest rates constant this month, following a hike in July that sent rates to their highest level in 22 years. However, the Fed has not ruled out more rate hikes, which may occur if inflation continues to slow.
According to the CME FedWatch tool, financial markets believe that Fed members would vote for a pause at their policy meeting on September 19-20, although investors’ betting on another pause in November are lower, at roughly 60%.
It’s difficult to predict whether or not the central bank will raise interest rates again this year. However, the two most likely outcomes are that the November meeting results in the end of rate hikes or one more increase.
If both the labor market and the broader economy continue to stagnate, the Fed might keep rates constant for the rest of the year, lowering inflation. There are other variables that could contribute to this, such as Americans spending less as student loan installments resume next month or banks continuing to tighten lending rules.
“The numbers that come out will likely show that inflation is moderating, so the Fed will keep rates on hold for the rest of the year, but I do believe we are higher for longer,” Leslie Thompson, chief investment officer at Spectrum Wealth Management, told CNN in an interview. Higher for longer indicates keeping interest rates high for an extended length of time.
According to Thompson, statistics suggesting prolonged inflationary pressure will frighten Wall Street more than weak quarterly earnings later this year. This could lead to more Fed rate hikes.
In his keynote speech at the Kansas City Fed’s annual conference last month in Jackson Hole, Wyoming, Fed Chair Jerome Powell made it clear that future hikes are still on the table if inflation proves to be more resilient than projected.
And, by halting in September but rising in November, the Fed may be attempting to let off the gas pedal before shifting to a new phase of maintaining rates stable. Powell compared the Fed’s slowing inflation fight to a car travelling more slowly as it gets closer to its goal.
Some insiders believe the Fed will continue to raise interest rates.
“We may need additional increments, and we may be very close to a point where we can hold for a significant period of time,” Boston Fed President Susan Collins told Yahoo! Finance a day before Powell’s Jackson Hole speech.
At the same time, there is a camp that believes the Fed has already done enough, highlighting the stark divide between those who support a harder stance on inflation and those who are concerned about unnecessary economic damage.
“I feel policy is appropriately restrictive,” Atlanta Fed President Raphael Bostic said last week in a speech in Cape Town, South Africa. “We should be cautious and patient, letting the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.”
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.