Fed Poised to Raise Interest Rates Further as Inflationary Pressures Ease
By The Federal Reserve has been raising its benchmark interest rate steadily since March of 2022, with two half-point increases and four hikes of three-quarters of a percentage point. On February 1, the Fed's Federal Open Market Committee raised its benchmark interest rate from 4.5% to 4.75%. Markets now expect the Fed to increase its benchmark rate by a quarter point again on March 22 and then again in May and June, taking the rate to a peak of 5.25%.
The Fed’s aggressive rate hikes have caused inflationary pressures to ease and the central bank is now looking to “pivot to a pause” in terms of monetary policy.[0] However, Jerome Powell has suggested that further interest rate hikes are likely needed to bring inflation down to the Fed’s 2% target rate.[1]
Traders on Wall Street are betting that the Fed will continue to raise interest rates, with several big wagers on the rate reaching as high as 6%, nearly a full percentage point higher than the current consensus. This has created more uncertainty in the markets, as a rate hike above the 5.25% peak could lead to a sharper pullback in the equity rally.
In the coming weeks, investors will be watching the monthly release of the Consumer Price Index in order to gain better insight on the Fed’s thinking. For now, it appears that the Fed will continue to raise rates as needed in order to keep inflation in check.
0. “Outlook for US fixed income and equities Franklin Templeton” Beyond Bulls & Bears, 12 Feb. 2023, https://global.beyondbullsandbears.com/2023/02/13/outlook-for-us-fixed-income-and-equities-amid-tighter-financial-conditions/
1. “The Fed And Markets” Barchart, 13 Feb. 2023, https://www.barchart.com/story/news/14154836/the-fed-and-markets
