US Federal Reserve Set to Raise Interest Rates for the 11th Time, Reaching Highest Level Since 2009 Financial Crisis

On Wednesday 26th July 2023, the Federal Reserve is poised to increase interest rates by a quarter of a percentage point, marking the 11th consecutive hike in the past 12 policy meetings. This move is likely to be the last in the central bank’s aggressive efforts to control inflation.

Investors are expecting this rate hike with almost 100% certainty, which would bring the benchmark overnight interest rate to a range between 5.25% and 5.50%. This level would be the highest since the period leading up to the 2007-2009 financial crisis and recession.

However, there is little indication that a similar economic collapse is looming. On the contrary, the economy has proven to be more resilient to rising interest rates than anticipated, showing continuous growth and an unemployment rate at a low 3.6%.

As the Fed contemplates future policy moves, it faces the challenge of balancing a strong economy that might sustain a higher inflation rate above its 2% target against the possibility of a “disinflation” process taking place even without further rate increases.

Following a rapid series of rate hikes in the past year, the central bank has adopted a more cautious approach, making decisions based on incoming data and keeping their options open. Fed Chair Jerome Powell is likely to emphasize this approach during a press conference after the policy statement’s release at 2 p.m. EDT (1800 GMT).

A crucial factor in determining future policy direction will be how the Fed weighs weaker-than-expected inflation versus stronger-than-expected economic activity, according to Steve Englander, head of G10 FX research and North America macro strategy at Standard Chartered. At this week’s meeting, the Fed will not update quarterly economic and interest rate projections. However, policymakers will have an opportunity to discuss quarterly bank survey data, which has gained significance following a series of regional bank collapses earlier in the year.

Spread the love