For now, the final rate is expected to be 3.8% in 2023, but given current inflation and its treatment, the Fed will have to adjust those numbers as well.
The US Federal Reserve’s Open Market Committee (FOMC) is set to wrap up its two-day meeting and the world is eagerly waiting to hear how far it will raise interest rates. According to general forecasts, economists are expecting a 75% hike, which, if achieved, will mark the third time such an interest rate has been pronounced by the Fed.
The economy is at a tipping point as inflation has remained very high. The Federal Reserve sees interest rate hikes as one of its bold attempts to rein in inflationary growth, and it is prepared to do so at all costs. Based on its determination, some analysts are even predicting that the Fed could announce a larger than expected interest rate hike, which could reach 100 basis points.
After the FOMC meeting, Fed Chairman Jerome Powell is expected to deliver a speech. The speech is expected to detail plans to continually raise interest rates until the level of inflation is brought back to the expected range of less than 4% from the current 8.3% recorded in August.
“I think he puts up a bulletin board behind him that says ‘inflation needs to come down’“said Rick Rieder, BlackRock’s chief investment officer for global fixed income. “I think he’s going to speak tough.”
In a surprising move, futures tied to the S&P 500 rose 0.23% while those tied to the Nasdaq 100 and the Dow Jones Industrial Average rose 0.10% and 0.6% respectively.
The potential rise in interest rates will be of great significance to the wider financial ecosystem and will certainly determine the rate of recovery for most tickers in the US economy. The Fed must have factored in all the odds and whatever rate hike is announced, it should help achieve all of the intended targets.
The Federal Reserve will raise the interest rate and the final rate
The Federal Reserve is not just announcing an interest rate hike, as other key forecasts are yet to come. One of these predictions is the “final rate“, which represents the level at which interest rates will peak before the Federal Reserve halts its aggressive rate hikes.
For now, the terminal rate is expected to be 3.8% in 2023, but given current inflation and its treatment, the Fed will need to adjust those numbers as well.
Citigroup Inc economists expect the final rate to reach 5%, while Goldman Sachs analysts believe it will be between 4% and 4.25% at the end of the year. Strategists expect this rate to fall from a peak of 4.25% to 4.5% in 2023. If these estimates materialize, they then forecast a drop in 2024 and two more in 2025.