- After 2-day meeting this last Wednesday, Federal ReserveÂ now anticipating rate hikes in 2023
- Current interest rate remains unchanged
Latest Meeting of Federal ReserveLeaves Interest Rates Unchangedâ€¦For Now
Officials of the Federal ReserveÂ announced that interest rates would remain unchanged at its latest meeting this last Wednesday.
Also at its latest meeting, FedÂ officials announced its expectations for a rate â€œupgradeâ€ of two interest rate increases by the end of 2023.Â Such expectations are based (perhaps from itâ€™s current rock bottom of 0.1% to 0.6%) on signs of a healing labor market and rising inflation.
FedÂ Both Optimistic & Cautious about Risks to Economic Outlook
In a statement released at the conclusion of its June 15-16 policy meeting, the FedÂ announced, â€œProgress on vaccinations has reduced the spread of COVID-19 in the United States.Â Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.â€
Jerome H. Powell, the FedÂ chair, added to that cautiousness and optimism by saying.Â â€œâ€¦weâ€™re going to be in a very strong labor market pretty quickly hereâ€¦â€ but, the FedÂ is in no rush to raise rates. Powell said â€œâ€¦whenever (the country’s economic) liftoff comes, policy will remain highly accommodativeâ€¦(and)â€¦ discussing liftoff now would be highly premature.Â Liftoff is well into the future.â€
Recent Economic Data Surprising
Consumer sales in May dropped slightly from April’s increase. Â May experts believe that consumers had “caught up” with their wish lists held over from the pandemic and that consumers are Â now sitting on any extra money “left over” from stimulus checks.
Also, the latest data on new unemployment claims in May from theÂ US Department of Labor rose. Â This increase in new unemployment claims is happening simultaneously with employers being “slower than expected” in hiring amid record numbers of job openings.
Lastly, inflation has exceeded expectations. Â Powell “…suggested (inflationary increases) were largely because of shortages and bottlenecks as the economy reopens.”
Powell also indicated that inflation “may” hit 3.4 – 3.6% this year and then flatten back to a 2.0 – 2.2 rate in 2022. (Obviously, market expectations for future inflation have increased.)
All of these indicators point to longer expectations for a “bumpy” ride to recovery.
Fedâ€™s Two Main Goals Unchange
From the get-go in March 2020, the FedÂ has been clear about its two main goals â€“ maximum employment and stable inflation â€“ before cutting back the Fed’sÂ bond purchases.
And, before raising interest rates, the FedÂ has been clear about seeing the job market return to full strength and inflation to track at an average of 2% over time.
FedÂ officials, on the whole, expect to achieve these above goals by late 2023.
Thanks to The Wall Street Journal.
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