The Federal Reserve has kept raising interest rates aggressively since February, but can we expect a turnaround in 2023? Financial Experts always aims to provide the most accurate market analysis, so let’s examine why interest rates are high and if we’ll see a pivot next year.
It’s essential to understand the role of the Federal Reserve and its primary focus: to maintain price stability and promote maximum employment. In practice, the Fed aims to keep inflation low and stable while maintaining conditions leading to strong economic growth and low unemployment. To achieve these goals, the Fed must constantly assess the state of the economy and adjust its monetary policy as needed.
However, the Fed’s recent monetary policy decision to raise the fed funds rate by another 50 basis points to a range of 4.25% to 4.5% has garnered significant attention from market participants and analysts. This move marks the seventh consecutive rate hike and brings borrowing costs to their highest level since 2007. While the decision was broadly in line with expectations, it is worth considering the implications of this move.
So, what led the Fed to raise interest rates?
One key factor is the current state of the economy. The US has seen strong economic growth in recent months, with GDP expanding at an annualized rate of 4.3% in the second quarter of 2022 and unemployment remaining relatively low. This strength has been driven partly by the continuation of accommodative monetary policy and strong demand for goods and services.
Also, inflation has been exceeding the central bank’s target of 2% for some time now, and policymakers are worried that if left unchecked, it could lead to unsustainable price increases.
Some analysts have argued that the central bank is acting too aggressively and that higher interest rates could slow economic growth and lead to higher unemployment. Others have argued that the Fed should have waited longer to raise rates to allow the economy more time to recover from the impacts of lockdowns.
Regardless of these debates, it is clear that the Fed is taking a proactive approach to managing the economy. Policymakers have indicated that further rate hikes will be necessary to return inflation to the 2% target.
The Fed predicts that interest rates will reach 5.1% in 2023 and a pivot in 2024.
It is also worth noting that the Fed revised its GDP growth projections for the coming years. The economy will continue to expand in the near term, but with a revised growth projection.
Inflation forecasts were also revised higher for the coming years. The Fed expects inflation to reach 5.6% in 2022, 3.1% in 2023, and 2.5% in 2024. Find all the detailed Fed press releases here.
To fight inflation, easymarkets top picks are gold and bitcoin. Gold has been a store of value for centuries and is less risky than cryptocurrency. Although more volatile, Bitcoin has shown predictable growth in the monthly time-frame.
Traders are anticipating new all-time highs above 70k by the end of 2024, and according to the rainbow graph, it looks plausible.
In conclusion, the Fed’s recent interest rate increase could show confidence in the economy’s strength. While risks are certainly on the horizon, we should expect another hike upwards in 2023 and a pivot in 2024. But depending on world events, as we have seen lately, this could change quickly.
