Powell Reaffirms Commitment to Soft Landing
The Federal Reserve has chosen to maintain interest rates during its recent FOMC meeting, citing the strength and resilience of the US banking system. The central bank also expressed confidence in the solid pace of economic expansion. In a press conference following the meeting, Federal Reserve Chairman Jerome Powell reiterated his long-standing belief in achieving a “soft landing” for the economy and emphasized the importance of restoring price stability.
Rate Hike Expected by Year-End
The Federal Reserve has released its forward-looking projections, with indications that the federal funds rate could reach 5.6% by the end of the year. While some Fed officials have expressed reservations about this rate hike, a consensus of twelve members supports it. The CME Fedwatch tool suggests that investors anticipate this increase occurring in December.
Probability of Rate Holding Steady
As of September 21, 2023, there is a 68.6% probability of the rate remaining unchanged, with a 31.4% chance of an upward adjustment at the November FOMC meeting. The Bank of England and the Swiss National Bank have also decided to maintain their interest rates following the Federal Reserve’s decision. The cryptocurrency market experienced a slight dip, while precious metals like gold and silver remained relatively stable.
Pressure on Lending Rates
Lending rates in the US are facing significant pressure, with average mortgage rates reaching their highest levels since December 2000. With interest rate cuts not expected until September 2024, it is likely that mortgage rates will continue to rise. The large US deficit spending and increased bond issuance are flooding bond markets with supply, further driving up interest rates. This has led to concerns about rising costs for homeowners and questions about the long-term plan.
Hot Take: Striving for a Smooth Economic Transition
The Federal Reserve’s decision to maintain interest rates reflects its commitment to achieving a “soft landing” for the US economy. Powell’s emphasis on restoring price stability highlights the central bank’s efforts to prevent economic disruptions. While a rate hike is expected by year-end, concerns remain about the pressure on lending rates and its impact on homeowners. It is crucial for the Federal Reserve to carefully navigate these challenges to ensure a smooth transition and sustainable economic growth.
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