Fed set to hike rates to 22-year high today, experts give their views

Americans are braced for interest rates at their highest in 22 years as the Federal Reserve announces its decision Wednesday.

Despite having paused last month and data showing that inflation is cooling, there is little to suggest that things are where the Fed needs them to be, so a rate rise is all but certain according to many leading economists.

Andrew Patterson, senior international economist at Vanguard, is among those expecting a 25-basis-point hike today, given the strength of the U.S. economy and the need to bring inflation down to 2%.

“We believe that when the Fed reaches terminal with 1 to 2 more hikes, they are likely to remain on hold through at least the end of the year,” Patterson told InvestmentNews. “If inflation proves persistent, this may be a sign of a higher neutral rate and the Fed may need to go to 6% or beyond in order to bring inflation back to target.”

Vanguard still thinks there is high probability of recession either this year or next, which will be necessary to bring down inflation, but next year is now looking more likely than 2023.


Diane Swonk, chief economist at KPMG noted this week that Jerome Powell will be dealing with some committee members who do not agree with a return to hikes.

“Austan Goolsbee of the Chicago Fed has been clear that he believes the Fed should be done and could dissent but has been reluctant to actually pull that trigger. He is not alone. Raphael Bostic of the Atlanta Fed has voiced his desire to pause for longer; it would be a victory for Powell to get another unanimous vote,” Swonk opined in a note Monday.

However, she also expects a July rate hike to proceed.

Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, says that a rate hike this month means the Fed could look for a protracted period of cooling inflation before halting rate hikes again.

She highlights the impact on the U.S. housing market.

“The mortgage market, which will likely see another uptick in interest rates, may continue to be slow, as many consumers may hold off on making a home purchase in hopes that interest rates stabilize and hopefully, come down soon thereafter,” she said. “It remains to be seen whether cooling inflation may help motivate consumers who had been holding off due to increasing cost of living expenses.”


However, while most experts are expecting a rate rise this month, September is another matter.

While some believe that we are about to see another run of rising rates, others are less certain.

Matt Brill, head of North America investment-grade credit at Invesco told Morningstar that he thinks that after cooler June CPI data the Fed will pause again in September to give them “enough time to continue to see this trend play out.”

 But Brill expects the Fed to talk tough.

“They’ll probably state that the work is not done, and that they need to see inflation come down,” he added.  “I think they will continue to be ultra-hawkish in terms of their rhetoric.”

The Fed is set to announce its decision at 2 p.m. ET.

Source link

Share with your friends!

Leave a Reply

Your email address will not be published. Required fields are marked *

You have not selected any currencies to display

Get The Latest Investing News
Straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Thank you for subscribing.

Something went wrong.