26 July 2023
Even as inflation rates have begun to stabilize this year, the Federal Reserve remains concerned about the fast-paced increase in prices. It’s likely to respond with a quarter-point interest rate hike on Wednesday. This would mark the 11th increase in 17 months, pushing the Fed’s short-term rate to roughly 5.3%, the highest since 2001, and inevitably increasing the costs of mortgages, auto loans, credit cards, and business borrowing.
Despite recent positive developments boosting stock prices and consumer confidence, another rate hike is anticipated. The hope is for a “soft landing”, where inflation slows towards the Fed’s 2% target without triggering a recession. While inflation was only 3% in June, down from 9.1% the previous year, and the economy shows signs of robustness, there are still concerns.
Core inflation, which excludes unstable food and energy costs, rose 4.8% in June, well above the Fed’s target. As long as such figures remain high, the Fed may be prompted to keep rates elevated or even increase them further. Two more increases are projected, including Wednesday’s, sparking concerns that too many hikes could lead to a recession.
Jerome Powell, Chair of the Federal Reserve, will likely be questioned on when the Fed might stop increasing rates. His expected response is that future decisions will depend on the economic indicators present at the time of the Fed’s next meeting on September 19-20.