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Fed Signals More Rate Hikes in 2023

Fed Signals More Rate Hikes in 2023

June 15, 2023

Fed Signals More Rate Hikes in 2023

The Federal Reserve surprised markets yesterday by forecasting two more rate hikes this year, even as they broke their string of ten consecutive increases. The central bank's dot plot, which shows the expected path of interest rates, now shows a terminal rate of 5.5% to 5.75% this year. This is a significant change from March, when most dot plotters expected no further increases after the benchmark rate reached its current 5.0% to 5.25% level.

The Fed's decision is a sign that they are struggling to bring inflation under control. Inflation has remained stubbornly high in recent months, despite the central bank's efforts to raise rates. The Fed is now hoping that by raising rates even further, they can slow the economy enough to bring inflation down.

However, there are risks associated with raising rates too quickly. A sharp slowdown in the economy could lead to a recession. And if inflation does not come down, the Fed may be forced to raise rates even higher, which could lead to even higher unemployment.

The Fed's decision is a reminder that the economy is in a delicate balance. The central bank is trying to walk a tightrope between raising rates enough to cool inflation, but not so much that they cause a recession. It remains to be seen whether the Fed will be able to successfully navigate this difficult path.

In addition to the Fed's decision, there are other factors that could contribute to higher interest rates in the coming year. The European Central Bank raised its benchmark rate yesterday, and other central banks around the world are also expected to raise rates in the near future. This could put upward pressure on global interest rates, which could make it more expensive for businesses and consumers to borrow money.

Higher interest rates could have a significant impact on the economy. They could lead to slower economic growth, lower stock prices, and higher unemployment. However, they could also help to bring inflation under control, which would be beneficial in the long run.

The impact of higher interest rates will depend on a variety of factors, including how quickly the Fed raises rates, how other central banks react, and how the economy responds. It is too early to say with certainty what the impact of higher interest rates will be, but it is a risk that businesses and consumers should be aware of.

The views stated in this blog are not necessarily the opinion of Cetera Advisors LLC. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.