Fed To Raise Interest Rates By 5% And To Keep It At That Level For A While

There isn’t much happening in terms of the Federal Reserve’s efforts to temper inflation, but it’s worth remembering that they have previously vowed to hike interest rates. The commitment has already been fulfilled for the past eight months.

Although the Federal Reserve fulfilled its initial commitment, what follows next is unknown. This ambiguity has led to the Federal Open Market Committee meeting on Wednesday, when the FED may declare its next rate hike to be at 5% and to stay at that level for a while.

Reason Behind the Fluctuation

Fed To Raise Interest Rates By 5% And To Keep It At That Level For A While

It was observed that recent predictions made by futures and options traders varied. According to reports, the central bank’s remarks about excessive inflation were the cause of the measured fluctuation. 

The recent failures of Silicon Valley Bank and Signature Bank may also be to blame. Another explanation could be the potential global banking crisis that has been raised by the distressed sale of Credit Suisse to UBS.

Wall Street analysts anticipate another possible conclusion that may be a pause on additional rate hikes, despite the fact that the Fed’s rates are already set to increase again. In essence, this meant that the cost of the interest on loans and credit card debt wouldn’t increase.

Hike Expectations Not Set But Guaranteed to Increase

Fed To Raise Interest Rates By 5% And To Keep It At That Level For A While

A further increase in interest rates, which presently range from 4.5% to 4.75%, is anticipated. Throughout March, it was seen that the likelihood and magnitude of the impending increase had changed.

Following Federal Reserve Chair Jerome Powell’s warning to a Senate hearing on March 7 that inflation was still too high, expectations were deemed to have increased from 25 basis points to 50 basis points. 

Silicon Valley Bank fell days after the warning was issued, shocking many onlookers, including economists at Goldman Sachs, who had projected no rate increase in March. A 25 basis point hike, however, is now predicted by the CME forecast tracker to be likely, with a likelihood of 87.8% while the remaining 12.2% expect there won’t be a hike.

Greg McBride, the head financial analyst at Bankrate, asserted that if all goes according to plan, there may be liquidity in the market, and credit is anticipated to flow. The FED will raise interest rates by a quarter percentage point, he continued. 

Another rate increase could result in a rise in borrowing costs that might continue to rise throughout 2023. Also, it can raise the cost of credit card debt, vehicle loans, and other forms of debt. This may have led to virtually doubled loan interest rates for borrowers over the past year, while for certain customers it may have resulted in increased costs due to rising inflation.

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