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Expect a Pause Says Powell

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The chairman of the Federal Reserve Banks, Jerome Powell, has stated they now expect to pause rate hikes after raising them by another 25 basis point to 5%.

“We believe that events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” Powell said before adding:

“As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation; instead, we now anticipate that some additional policy firming may be appropriate.”

Powell said the committee also considered a pause for this meeting in the days prior to the meeting, but the decision was instead to change the guidance.

In further indicating that more hikes are now unlikely, save for potentially only one 25 basis point increase in the next meeting, Powell also said:

“If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 5.1 percent at the end of this year, 4.3 percent at the end of 2024, and 3.1 percent at the end of 2025.”

As rates are currently at 5%, and they expect them to be at about 5% by the end of the year, that means rate hikes are pretty much over as things stand, and rate cuts are coming.

Powell indicated that no rate cuts should be expected for this year, but with just another potential small rise in the next meeting, and a drop next year, the trend has shifted.

That may of course change depending on many factors and if there are any surprises, but something broke in close to $1 trillion of deposits having to be rescued either from collapsed banks or bought out banks, so the hikes are now stopping.

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