Fed Rate Hike: On Wednesday, the Federal Reserve tightened monetary policy by the most in 40 years, increasing interest rates by another three-quarters of a percentage point and saying that higher borrowing costs are necessary for the fight against inflation.
The two-sided message left open the possibility of further rate hikes by the Federal Reserve if inflation doesn’t begin to slow and it also allowed flexibility for policymakers to continue pushing rates higher if inflation didn’t start to slow in December.
In a press conference following the conclusion of the Fed’s most recent policy meeting, Chairman Jerome Powell said he wanted there to be no misunderstanding: He said that policymakers were still unsure of how high rates would need to rise to reduce inflation, but were nonetheless resolved to “keep the course until the job’s done.”
No matter how quickly the Fed acts, Powell said, “there’s some ground to cover” before the target federal funds rate is at a “sufficiently restrictive” level to limit inflation. This road ends at “very unsure… With enough patience, we will eventually locate it.“
The Fed raised rates by 75bp. I’m worried about the signal the press release sent, we’ll see in the presser.
It is correct in pointing to cumulative impact and lags. It would be fine to go slower for longer with 50bp at the next meeting and 25bp after that. But… pic.twitter.com/QzP8Ye5f6L
— Jason Furman (@jasonfurman) November 2, 2022
The major U.S. stock indices saw sharp increases after the release of the Fed statement, which promised to take economic risks more clearly into account in deciding the size of any further rate increases, but saw those gains evaporate as Powell spoke, ultimately resulting in a sharp decline by the end of the trading day. S&P 500 (.SPX) and Nasdaq Composite (.IXIC) both saw losses of above 3%.
After initially falling dramatically after the Fed statement was announced, yields on U.S. Treasury assets began to rise. Two-year notes (the most Fed-sensitive bond maturity) rose by 6 basis points to around 4.61%.
How much Rate Hiked by Fed today?
The Federal Reserve is widely anticipated to raise its key rate by further three-quarters of a point in the coming month, followed by two other quarter-point increases in the first quarter of 2019.
The key rate would then be in the range of 5% to 5.25%. Experts predict that a Fed funds rate of more than 5% would lead to a recession. The futures market is anticipating a rate cut from the Federal Reserve in September 2019 in order to stimulate the economy.
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When does the Fed have its next scheduled meeting in the year 2022?
FOMC Meeting, November 2
The Federal Reserve Board then planned to wait until early November to announce new interest rate policies, skipping the month of October. The decision becomes less clear the further out we look, but market futures suggest that an increase of either 50 basis points (bps) or 75 bps (bps) is the most likely outcome similar to the meeting in September.
If that were to happen, short-term rates would cross the psychologically significant 3% threshold at this meeting, which may further invert the yield curve and suggest a deepening recession. Short-term rates already reflect the likelihood of a rate increase and predict no significant change at the longer end of the yield curve, so the actual inversion is more likely to occur before the meeting.
The Fed Will Meet on December 14
A further, smaller increase is forecast for the final meeting of the year, which is scheduled for the middle of December. Inflation may have moderated or economic growth may have slowed to the point where the Federal Reserve decides to leave interest rates unchanged at their December meeting, according to the market.
Good morning and welcome to “Fed Day” where it’s much less about what now and much more about what next.
While the overwhelming expectation is that the #Fed will hike 75 bps today, views vary on whether and how the Fed communicates a downshift in the pace of future hikes#economy— Mohamed A. El-Erian (@elerianm) November 2, 2022
What time is the Fed Rate Hike decision?
Wednesday will see the big interest rate announcement from the Federal Reserve. An important shift will occur in the stock market and it’s unclear which way it will go.
In the next few days, the Federal Reserve is widely expected to announce a rate increase of 0.75 percentage points in the fed funds target rate. On Wednesday, it took the next step in its ongoing effort to reduce excessive inflation by slowing consumer spending. What signals Fed Chair Jerome Powell delivers about the possibilities for future rate increases will be crucial for markets.
Next Fed Rate Hike
On Wednesday, the Federal Reserve is expected to increase interest rates significantly before easing down its efforts to combat inflation.
The Federal Reserve is expected to raise its target interest rate range by 0.75 percentage points at the conclusion of a meeting on Wednesday according to analysts and economists. The action will be the fourth consecutive rate hike by the Fed, each of which was previously deemed “unusually substantial”
As the Fed comes under increasing pressure to ease monetary policy, this event could be a watershed moment.
The final policy meeting of the year is scheduled for December, but Fed Chair Jerome Powell is not expected to announce a stop in rate hikes or the bank’s plans. But those keeping tabs on the Fed will be looking very closely for any indications that central bankers think they’re getting near to the level at which they intend to keep interest rates for the foreseeable future.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, “We see a reasonable possibility that core inflation and wage growth will decline at the same time, more or less,” suggesting that the Federal Reserve would likely delay its final boost until December.
Buyers have been scared off by the Federal Reserve’s rate hikes leading to a precipitous drop in home sales and the first steady price reductions in more than a decade. As companies rein down their hiring plans and cut back on long-term investments that could fuel future growth wage growth has stalled.
Nevertheless, inflation has remained elevated and Powell has cautioned that the Fed will maintain its current course of action until it sees evidence of slowing price growth.
The “hard statistics” that “matter most to markets and the Fed” are still “not yet completely evident” due to “these influences,” Shepherdson explained.
The favored inflation gauge of the Federal Reserve Board, the price index for personal consumption expenditures, showed a 6.2% annual increase in prices over the previous year. It is still significantly higher than the Federal Reserve Board’s 2% annual inflation target.
Also important is the consumer price index (CPI), which showed an annual increase of 8.2 percent in September. The Fed does not rely solely on the CPI to determine inflation, although it does pay close attention to it.
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Frequently Asked Questions
Definition of Fed Rate Hike
When interest rates rise, the cost of borrowing money for the federal government rises, contributing to the growth of the national debt and the widening of budget deficits. For the years 2022-2031, the deficit is projected to reach $12.7 trillion, as reported by the Committee for a Responsible Federal Budget.
Fed Rate Hike chart
| Calendar | GMT | Reference | Actual | Previous | Consensus | TEForecast | |
|---|---|---|---|---|---|---|---|
| 2022-09-21 | 06:00 PM | Interest Rate Projection – 3rd Yr | 2.9% | 2.1% | |||
| 2022-09-21 | 06:00 PM | Interest Rate Projection – Longer | 2.5% | 2.5% | |||
| 2022-11-02 | 06:00 PM | Fed Interest Rate Decision | 4% | 3.25% | 4% | 4% | |
| 2022-11-23 | 07:00 PM | FOMC Minutes | |||||
| 2022-11-30 | 07:00 PM | Fed Beige Book | |||||
| 2022-12-14 | 07:00 PM | Fed Interest Rate Decision | 4% | 4.5% | |||
When will the Fed announce rate hikes?
So what occurs if the Fed decides to raise interest rates?
Rising interest rates, caused by increases in the federal funds rate, have the effect of slowing the economy. In this way, rising interest rates from the Federal Reserve can reduce consumer spending and boost savings rates.
Final Thoughts
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