Fed Extended Interest Rate: Plan Faces Erosion—Enter the Era of Sustained Higher Rates

Fed Extended Interest Rate: Investors are optimistic about potential interest rate cuts from the Federal Reserve in the first half of next year, despite officials, including Fed Chair Jerome Powell, insisting they are not currently considering such cuts. Some anticipate rate reductions as early as the first quarter, with around a 44% chance of the first cut occurring in March, according to futures.

Recent inflation figures have provided encouragement, but real-time forecasts indicate a significant slowdown in economic growth since the summer. Confidence in upcoming rate cuts has been growing, challenging the Fed’s previous commitment to higher rates for a longer period.

Diane Swonk, chief economist at KPMG, stated, “Now we’re moving into higher-for-long-enough,” signaling a potential shift in the Fed’s strategy.

If predictions of a March cut or a cut in May materialize, it could undermine the Fed’s higher-for-longer approach. Powell and other officials have expressed caution about early rate cuts, but market expectations, driven by data dependence, may force a different outcome.

Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, highlighted Powell’s hawkish bias and the likelihood of additional measures if necessary. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, rose 3% in October, down from September’s 3.4%. Eyes are on the November Consumer Price Index for further insights.

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Christopher Waller, a hawkish Fed Governor, expressed confidence in the current policy’s ability to slow the economy and bring inflation back to the target of 2%. The upcoming two-day policy meeting is expected to maintain rates at a 22-year high.

In another economic development, China has pledged to strengthen fiscal policy in 2024 to boost its economy. This follows Moody’s recent downgrade of China’s credit rating outlook to negative due to concerns about persistent lower economic growth and challenges in the property sector.

Officials at a recent meeting chaired by Xi Jinping emphasized proactive fiscal and prudent monetary policies. The goal is to expand domestic demand, stabilize foreign trade and investment, and improve the quality and efficiency of fiscal policy. Authorities also underscored the importance of preventing systemic risks in key areas.

Our Reader’s Queries

Is the Fed finished raising interest rates?

The Federal Reserve’s recent message indicates that it may be done with raising interest rates, which have been increasing at the fastest pace in 40 years. Instead, the Fed is now considering the possibility of cutting rates as early as next summer. This shift in policy is significant and could have a major impact on the economy.

What is the Fed interest rate today?

The current Fed interest rate stands at 5.25% to 5.5%.

What is the Fed decision for July 2023?

In July 2023, the FOMC increased interest rates to 5.25%–5.50%, making it the 11th rate hike aimed at controlling high inflation. Market experts predict that the Fed may start reducing rates later in 2024 as inflation eases towards the Fed’s 2% target.

Will Fed lower interest rates 2024?

In December, the FOMC gave the green light to a plan that would see interest rates slashed three times in 2024. Each cut is expected to be 0.25%, with additional reductions in 2025 and 2026 to bring the federal funds rate down even further.