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July 26 FED Meeting Predictions



 

Article Contents

 

Key Definitions


Soft Landing: The process of reducing inflation without entering into a recession.

Deflation: When prices in the economy are falling.

Disinflation: The slow down in price increases (slowdown in inflation).

Fed Funds Rate: The interest rate banks charge each other for short-term loans. The Federal Reserve sets a target for this rate.

Fed's Benchmark Rate: Serves as the reference point that the Fed uses to guide its monetary policy.

Rate Hike: An increase in the Fed Funds rate set by the Federal Reserve.

 

Rate Hikes: The Final Stretch?

July 26 the U.S. Federal Reserve is expected to raise its benchmark overnight interest rate by 25 basis points to the 5.25%-5.50% range. This adjustment is forecasted to be the last one in the current tightening cycle. The rationale behind this move is to keep inflation under control without triggering a major recession - a strategy often referred to as a "soft landing."


When the Federal Reserve first embarked on this series of hikes, there were concerns that such aggressive actions would lead to an economic crash. However, the economy has proven more resilient than initially anticipated, with markets adjusting to the changes without a large-scale downturn. This resilience has defied expectations and shown the capacity of the economy to absorb these changes.


The Possibility of a Recession

Despite the economy's resilience, a number of economists caution that we're not out of the woods yet. They worry that a recession might still be on the horizon due to the long-term effects of high interest rates, such as increased borrowing costs and persistent inflation concerns. Some of them are skeptical about the possibility of a "soft landing", considering it hard to achieve given the extended period of higher rates.


Even though these potential issues are looming, a number of experts hold a more optimistic view. They believe that the recent moderation in inflation can be sustained, allowing the Federal Reserve to maintain steady interest rates following this week's hike. This would further help in mitigating the risks associated with an economic downturn.


In the upcoming sections, we delve deeper into this divide in economic opinion, the factors contributing to economic resilience, and the broader implications of the Federal Reserve's monetary policy.


The Economy's Stability

The economy has been resilient in the face of these changes, with falling inflation surprising analysts and investors. This stability has led to speculation about potential interest rate cuts by the end of 2023. The Federal Reserve is projected to raise its key interest rate for the 11th time since March 2022, marking the highest point in 22 years.


Economists' Predictions

As it stands, the benchmark rate is about 5.3%. Many economists are hopeful about achieving a "soft landing," where inflation is controlled without causing a significant recession. Goldman Sachs has even lowered its recession prediction from 35% to 20%.


Contributors to Economic Resilience

The economy's strength can be attributed to strong consumer spending, extra pandemic relief savings, and healthy hiring practices. Inflation has also decreased, with prices in June rising just 3% from the previous year, down from 9.1% in June 2022.


Inflation Concerns

Some economists question whether more rate hikes are needed to continue the decrease in inflation. The Federal Reserve's projections suggest the interest rate will peak at 5.50%-5.75%. However, only a small minority of economists predict that it will reach this range. A weaker U.S. dollar, coupled with inflation worries, might keep price pressures high.


The Labor Market and Economic Growth

The strong job market is expected to soften a bit, with the unemployment rate predicted to rise to 4.0% by the end of 2023. Wage inflation, a key part of core inflation, might remain persistent. The economy's growth is expected to slow from 1.5% this year to 0.7% next year. Many economists predict a U.S. recession could start in 2023. Inflation is not expected to reach the Federal Reserve's 2% target until at least 2025.


Conclusion

In short, the U.S. Federal Reserve is heading towards its last expected increase in interest rates. The economy has shown surprising strength, even with the rate hikes. However, some people are still worried about the chance of a recession due to the lasting effects of high rates.

Economists don't all agree on what will happen next, but they all are watching the situation closely. Factors like strong spending, savings from pandemic help, and good hiring trends have helped the economy stay strong so far.

Inflation, or the rate at which prices are going up, is a big part of the Fed's decisions. Their actions over the next few months will be closely watched as the U.S. economy moves forward into a time of both challenges and opportunities.

 

Roy Dunia

ChartAddicts Analysis

7/25/2023

 

Disclaimer: The opinions in this article are based on evolving data and may change. They don't represent any official stance. The author isn't liable for any errors or outcomes from using this information.


Copyright Notice: This article is copyrighted. Reproduction or use without permission or proper credit is strictly prohibited.

 

"Fed's Last Rate Hike Coming at July Meeting, Economists Say." Reuters, 19 July 2023, www.reuters.com/markets/us/feds-last-rate-hike-coming-july-meeting-economists-say-2023-07-19/. Accessed 25 July 2023.

 

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1 comentario


Vedant Shinde
26 jul 2023

THANKS for the knowledge inside the article bro.

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