Markets figure the economy and inflation will slow substantially in the coming months, keeping the Fed on hold. But they don’t buy the Fed’s prediction of a second additional increase this year. Recession? No recession? Why a major bank says an economic downturn is unavoidable What is the market expectation for Fed interest ratesįinancial markets reckon the central bank will hoist its key rate again in July. The Fed believes it needs to continue to push up rates since inflation has responded only modestly to its previous hikes. Sharp increases in rent and used cars have fueled the core reading. The annual rise in core personal consumption expenditure (PCE) prices – the Fed’s preferred inflation measure - actually ticked up to 4.7% in April from 4.6% in December. But a measure of inflation that strips out volatile food and energy items and that the Fed follows closely, has stayed high for longer than expected. Inflation overall has come down steadily. Why does the Fed want to raise rates further? In March 2022, the rate was still near zero as officials stayed focused on juicing the economy after a pandemic-induced recession. The fed funds rate remains at 5% to 5.25% after Fed policymakers decided to keep it unchanged on Wednesday to assess how their rate increases so far are affecting the economy. The Fed lifts its key rate to make it more expensive for consumers and businesses to borrow, theoretically curtailing spending and putting less upward pressure on consumer prices.
That’s the sharpest flurry of rate increases in four decades. Since March 2022, the Fed has hiked its benchmark federal funds rate at 10 straight meetings by a total of 5 percentage points. Officials’ hard-nosed stance raises a pointed question: When will interest rates start coming down? How many times has the Fed raised rates? That represents a quarter point more than economists anticipated and a half point more than the Fed itself projected in March. The central bank forecast another half percentage point in rate increases this year, according to officials’ median estimate. The Federal Reserve paused its aggressive rate hiking campaign Wednesday for the first time in 18 months but signaled emphatically that its battle against inflation isn’t over.
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