20-21 policy meeting with strong calls for another oversized interest rate increase to. In addition to the press release, Jerome Powell will give a press conference and the Fed will share it’s projections for economic variables over the coming years, including where it expects interest rates to end 2023. Federal Reserve officials on Friday ended their public comment period ahead of the U.S. The December 14 interest rate announcement will also offer additional color on the Fed’s thinking. There’s a broad view that after the December meeting we should be at, or close to, peak interest rates for this cycle. Currently it expects rates to be held at around 4.5% to 5.5% for much of 2023. Markets are watching to see what the level of peak rates is and how long those rates are held for. Futures markets don’t see much chance that short term interest rates hit 6%. However, if the December decision is a 0.5 percentage point hike or lower, then peak rates for this cycle may come in closer to 5%.Įither way it’s a fairly narrow band of outcomes for interest rates. If December sees a 0.75 percentage point increase, that’s a signal that interest rates may top out at 5.5% or higher. The key question here is how high the Fed wants rates to go in 2023. The Fed still wants restrictive monetary policy, but it may achieve that by holding rates at a high level and waiting for the economic consequences, rather than a less sophisticated approach of continually raising rates until inflation falls. The minutes from the November Fed meeting and speeches from policy-makers may help shed light on where peak rates will land this cycle. Setting rates too high for too long, may cause unnecessary pain and, would start to materially increase the cost of servicing the relatively large national debt. However, the Fed has noted that it is likely approaching the maximum level of interest rates that it wants to see. The November rate hike was a large and unanimous 0.75 percentage point increase in rates from policy-makers.
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