The Decision Is In – The Federal Reserve’s Rate Pause
After nearly two months of rates left unchanged, the time has come when the Federal Reserve settles for the next step in monetary policy. With a rate hike during the last meeting in July, members of the Federal Reserve chose to pause rates, leaving the current federal funds rate at 5.25% to 5.5%, the highest level in 22 years. This decision has become just the second pause since March 2022, where 11 hikes have given borrowers a very strenuous economic environment. Along with the pause, the Federal Reserve also increased its economic growth expectations, jotting an expected 2.1% rise in gross domestic product this year. In correlation to higher interest rates, the Federal Reserve also continued to shrink its balance sheets, cutting nearly $815 billion since June 2022.
Although the move to pause was expected, investors weren’t so enthralled with the post-comments made by a hawkish Jerome Powell. As the Federal Reserve Chairman, Powell insinuated that one more rate hike may be left for 2023, with the next two meetings occurring in November and December. After concluding that more progress was needed to be had, Powell also shared that fewer rate cuts may occur next year than previously forecasted. To reach the goal of 2% inflation, members of the FOMC had estimated by 2026, the funds rate should reach around 2.9%, remaining higher than it was just two years ago. Powell finished his remarks with an answer to the idea of the fabled “soft landing”. Claiming it was the “baseline expectation”, he reiterated that it was plausible, but external factors certainly do not rule other outcomes out of the question.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.