Fed Rate Decision For 2023
The Federal Reserve raised its policy rate today by 0.75%. This was in line with expectations. However, the scale of the downgrade in the outlook for the economy was enough to send stocks and short-term bond yields lower. According to the new SEP, the economy will grow at just a paltry 1.2% in 2023, while core inflation will spike to 3.1% and the unemployment rate will increase to 4.4%. The Fed is currently expected to increase rates closer to 5% in 2023, but the market believes this is less likely. Financial markets see a wide range of outcomes for the rate decision in 2023, with about a one-in-six chance of the Fed staying on the current path.
The dot plot, which represents the projections of 19 Fed policymakers, reflects their current expectations for interest rates. The dot plot represents the policymakers’ estimates of the interest rate at the end of 2022 and in the long-term. Forecasts are represented by dots arranged in a vertical scale, with each dot representing a Fed official’s judgment.
While some economists see the economy reaching a recession next year, the most optimistic view is that interest rates will remain below 3%. This is the level that the Fed will aim for, with the goal of keeping rates low for longer. But a rate cut this year is highly unlikely. The S&P 500 recovered from its lows and is now trading flat.
Fed Meeting Announcement For December 15th
The Fed meeting announcement for December 15th could cause a major shift in the stock market. The Fed has hinted that it wants to accelerate the winding down of its emergency stimulus program, which has boosted stocks since September. But this move may also raise concerns over the state of the US and global economy. Feel free to click here to know all about the when are fed meetings this year.
A major question on the minds of investors is whether the Federal Reserve will raise interest rates during the December 15th meeting. With the tapering of the bond buying program to end in March, the central bank is likely to begin raising interest rates again. In the meantime, the Fed is likely to ramp up its asset-purchase program to $30 billion per month. This program is made up of a mix of Treasuries and agency mortgage-backed securities.
Interest Rate Hikes For 2022
Almost all members of the Federal Open Market Committee expect an additional hike in the key interest rate in 2022, bringing the target rate to 4% or 4.25%. This would be the largest single increase since 1994. Fed officials believe that additional rate hikes will be necessary to keep inflation under 2%. They also expect to cut the federal funds rate by three-quarters of a percentage point in 2024. Markets predict a rate hike of 50 to 75 bps after that meeting. However, the outlook for the economy remains uncertain. Despite the recent rise in interest rates, the economy is projected to shrink by around 1% in 2023. That means there’s a 54% chance that the economy will slide into a recession next year.
The Fed is raising interest rates at a fast pace, which is unprecedented for the organization. The next rate hike is expected to be at least three percentage points higher than in 2018. However, the pace of the hikes has been tempered by recent economic data. During the ’88-’89 cycle, the rate hikes were twice as fast as now.
Final Words
Fed watchers have been focusing on the “dot plot” of policymakers’ expectations for interest rates over the next several years. In June, Fed members’ forecasts suggested a peak interest rate of 3.75% and a slight decline by 2024. This cycle is likely to be the most aggressive since 1982, when the Fed first began targeting interest rates.
