Fed Up? Here’s Everything You Need to Know About Upcoming Interest Rate Hikes

Posted by Katie Wedge on Tuesday, June 27, 2023 at 4:30:14 PM By Katie Wedge / June 27, 2023 Comment

The news that the Federal Reserve has decided to leave interest rates unchanged may be viewed as a welcome reprieve for both consumers and investors. However, it’s important to remember that this pause may not last forever. According to Federal Open Market Committee officials, the current benchmark borrowing rate, which currently stands between 5-5.25 percent, may see two more rate hikes in the near future. While this may catch some off guard, it’s important to stay informed and keep a close eye on any economic projections to ensure you’re financially prepared for any changes.

The prospect of rising interest rates may soon become a reality as officials brace themselves for levels not seen since 2001. What makes this forecast even more surprising is the fact that only a few months ago, very few saw this coming. Now, with stubborn inflation, a strong job market, and a relentlessly resilient economy, the Fed is becoming more aggressive in their approach. With prices rising at an alarming rate and core prices at a persistent 5.3 percent, officials have little choice but to take action. Although the job market remains strong, the Fed is actively looking for ways to cool down the economy before it gets overheated.

The year 2020 brought unprecedented challenges to the economy, with the COVID-19 pandemic causing millions of job losses and business closures. However, things are starting to look up as we approach the end of 2021. A recent report shows that employers have added more than two times as many jobs over the past 12 months compared to 2019 - a glimmer of hope for the job market and workers across the country. Meanwhile, consumers are still spending and contributing to the economy's growth, despite the pandemic's ongoing impact. As we continue to navigate these uncertain times, this news can provide some much-needed optimism as we look to the future.

The common phrase "only time will tell" rings especially true when it comes to predicting the future of the U.S. economy. Federal Reserve projections provide insight, but the situation remains complicated and even perplexing. With two estimated rate increases on the horizon, speculation abounds as to whether or not the Fed will follow through. Fed Chair Jerome Powell cautions that projections are not a sure thing, and investors seem to agree. According to CME Group's FedWatch tool, they anticipate one more rate hike in July, followed by a holding pattern until the end of the year. As always, uncertainty looms large in the world of finance.

While the possibility of the Federal Reserve raising interest rates two more times this year has been widely discussed, not everyone is on board with this prediction. Leading economists such as Ryan Sweet from Oxford Economics and Tuan Nguyen from RSM have divergent views on the issue. Sweet doesn't foresee any more rate hikes this year, while Nguyen predicts one more at the most. Despite differences in their outlooks, both experts agree that the Fed must keep all options open to decide whether to pause or hike in the upcoming meetings. The next few months will be a crucial period for the U.S. economy, and the Fed's decisions may have a significant impact on it. As the Fed weighs their options, we'll be watching closely to see how the markets respond.

The Fed's Next Steps: Inflation, Employment, and a Little Bit of Banking Stress

The future of the Federal Reserve's moves is heavily reliant on key economic factors such as inflation, employment and banking stress. In particular, inflation has always played a crucial role in shaping the Fed's monetary policy, and even more so now as officials are projecting a significant increase in the core inflation rate. The forecast calls for a 3.9% rate, up from just 3.6% last March, which could trigger more interest rate hikes in the future. With such a significant change in estimate, it is clear that the Fed's approach towards managing inflation will become a major focus in the coming years.

Despite the ongoing pandemic and its significant impact on the job market, there is some good news on the horizon. Recent projections suggest that joblessness isn't expected to peak as high this year, with estimates indicating a 4.1 percent unemployment rate - lower than the 4.5 percent predicted just three months ago. Furthermore, the economy is expected to continue growing throughout the year, with a projected 1 percent increase. These forecasts come after Federal Reserve Chairman Jerome Powell rejected a staff forecast for a recession in 2023. As Powell and other policymakers review the research done by Fed staffers during their meetings, they will be guided in their rate decisions by this data.

In May, Federal Reserve Chairman Jerome Powell expressed his belief that the current economic climate may be different compared to past recessions. He acknowledged the unforeseen decrease in job openings without a corresponding rise in unemployment, something that was considered unlikely. However, a majority of Fed officials remain uncertain about their inflation projections, with risks for both core and headline inflation leaning toward the upside. This suggests that there is a looming possibility of further price increases in the near future. While there are unavoidable uncertainties, Powell and his team continue to assess the situation and work towards the best possible outcome for the economy.

Kathy Bostjancic, the chief economist at Nationwide, believes that risk assessment can reveal a lot about a person or organization's priorities. According to her, when it comes to interest rates, those who are willing to take on more risk tend to favor higher interest rates due to the potential for inflation. While this may or may not be the best course of action, it does give insight into what a person or organization values and where their priorities lie. By taking a closer look at risk assessments, we can gain a better understanding of the thought processes behind key financial decisions.

The markets are currently gripped by a fear that has been brewing for some time now: defeating inflation may come at the cost of starting a new recession. It's a delicate balancing act that depends on many factors, including wage growth and consumption, both of which can take a hit when the economy enters into a downturn. This is precisely what investors have been dreading. As one of the most reliable indicators of a recession, the 10-year Treasury yield has been trading below the 2-year rate for months, suggesting that the market is bracing itself for the worst. It's a precarious situation that requires a measured approach to keep the economy on track. The question is, can we find a way to beat inflation without triggering another recession? Only time will tell.

As the threat of inflation looms over the economy, many are worried that a recession may be the only way out. This anxiety has been fueled by past experiences, particularly during the stagflationary-era of the 1970s and early 1980s, when markets were hit hard by inflation. Unfortunately, history hasn't exactly been kind to the Federal Reserve when it comes to handling economic downturns. In fact, according to financial analyst McBride, the odds are in favor of a recession - especially given that two of the last three tightening cycles led straight to one. Though it remains to be seen how the Fed will handle the current inflation crisis, one thing is clear: the stakes are high, and every decision counts.

How much longer can the Fed increase interest rates? Well, it all boils down to whether regional banks throw a wrench in the economy. The Fed has the tricky task of balancing financial and price stability. The recent failures of Silicon Valley Bank, Signature Bank, and First Republic highlight the need for caution. In order to address financial stability, the Fed may have to loosen financial conditions, but that could drive up prices. A delicate dance indeed!

Banks going under could have a major impact on the economy. If they become even more hesitant to lend money because of the Fed's increasing interest rates, there will be less money flowing around the financial system. This could lead to a decrease in spending and a drop in inflation, lessening the need for higher interest rates. The Fed is currently uncertain how much additional tightening these bank failures could bring and how long the impact would last. During a recent press conference, Chairman Powell estimated that the recent credit crunch is equivalent to a quarter-point rate hike.

Back in June, when asked about the possible effects of recent bank failures, Powell wisely cautioned that it was still too early to make a definite call. However, he also stated that if officials did see signs of tightening beyond normal levels, they would adjust their plans accordingly.

Flash forward to today, and it's clear that financial conditions have indeed tightened since those incidents. In fact, the bond market has experienced its highest levels of volatility since 2009, causing some concerns about asset liquidity. But don't panic just yet - both of these measures have actually been on the upswing lately. Stay tuned for further updates.

Get ready for some economic shockwaves - the upward trend of the S&P 500 has led to consecutive rate hikes, which could have a major impact on job growth and employment opportunities. Although rates have finally begun to rise, the true consequences of these hikes may not become apparent for up to a year. With historic lows behind us, each subsequent rate increase will undoubtedly pack a bigger punch than the last.

According to former Federal Reserve veteran and current finance professor at the Yale School of Management, Bill English, the key to managing economic risks is to prioritize inflation over a slowing economy. In other words, if we sit around waiting for the economy to pick up, we risk a potentially damaging escalation of inflation. So, to avoid greater problems down the line, it’s essential to stay ahead of the curve and act fast. Don't be fooled by lags - predicting the future is tricky, especially when it comes to the economy, but the sooner we make informed decisions, the better off we'll be.

Five Money Moves to Make When Recession Risks Are Through the Roof

Welcome to the era of money not being cheap anymore! Although most of the Fed’s rate hikes may have finished, it still results in you paying more when borrowing – credit cards, personal loans, and auto loans included. Unfortunately, these borrowing costs are unlikely to decrease until the Fed cuts future rates.

Don’t get caught unprepared during this new age of monetary policy. It’s time to take action towards organizing your finances and aligning them with these new costs – they’re unlikely to return to their previous, record-low levels in the foreseeable future.

1. Gear up for the long haul

The Fed's decisions on rates might stir up the stock market and make it hard to predict. If this volatility leads to plummeting stocks and whispers of a recession or higher Fed interest rates, don't panic. Stick to your guns with a diversified portfolio and a long-term mindset, and you'll make it through the toughest roller coasters that the stock market throws at you.

2. Slash that Debt!

Don't let a Fed rate hike catch you off guard, especially if you have a high-interest, variable-rate loan such as a credit card. The average credit card rate is now up to a whopping 20.49 percent (yikes!).

But don't stress, you can tackle that debt head-on by consolidating it with a balance-transfer card. Some cards offer borrowers a sweet deal of no interest for up to 21 months, allowing you to make a huge dent in your principal balance.

Don't fall prey to stingy terms and disappearing offers during economic woes. If you've got an adjustable-rate mortgage or HELOC, consider refinancing into a fixed-rate loan and avoid soaring interest rates. Don't be a sitting duck, take charge of your finances.

3. Fortify Your Finances with an Emergency Fund

Don't be caught off guard by unexpected expenses – a solid emergency fund is your safety net. And with online banks offering great yields, you don't have to worry about inflation eating away at your savings. Take a closer look at your finances and see where you can cut back to add more to your rainy-day fund. Your future self will thank you.

4. Boost Your Savings: Discover the Top Spots for Your Cash

Tired of measly returns on your savings? It's time to switch things up. Ditch your current account and opt for a high-yield savings option. With some banks offering close to 5% yields, you could watch your cash grow five times faster! How does an extra $500 in interest sound? Trust us, it beats the $25 return you're getting now. Take the leap and upgrade your savings game.

Good news - you can put that money to work for you with a 2 or 5-year certificate of deposit! By locking in those sweet high yields now, you won't have to worry about dips in the market or shady banking practices. Plus, don't wait for the Fed to make a move - banks might lower their rates on their own accord, so strike while the iron is hot. Invest in your financial future today!

5. Buckle up your finances for the bumpy ride ahead

Given the shaky future of the economy, it's high time to fireproof your finances against any potential recession. Along with beefing up your emergency stash, financial gurus advise:

- Living frugally and avoid living beyond your means

- Staying connected with your pals, colleagues and professional network

- Identifying your appetite for risk and invest accordingly

- Keeping your eyes on the prize and focusing on the long-term investment outlook

Seize the day and secure your financial future!

The Fed is taking on inflation with the same courage as firefighters battling a blaze. While risking a potential recession, they are focused on achieving stable prices for all. Mark Hamrick, Bankrate's senior economic analyst, explains how this move will benefit individuals, households, and businesses alike.

What we can be sure of is that the sooner you get prepared for the upcoming interest rate hikes, the better off you'll be. So act now! Start looking into saving on some of your loan payments by shopping around for a better rate or refinancing your credit cards. Invest in smarter retirement funds and educate yourself on different account options. And lastly, start thinking about how the rising rates will influence other aspects of your life - like travel or purchasing a new home. With preparation and careful financial planning, these bumpy waves won't affect you so harshly. Stay informed and take action today to ensure that when these changes hit, you’ll have plenty of ground to stand on.

KATIE WEDGE

(571) 517-2012

[email protected]

katie.jacobsandco.com