The US Federal Reserve is hurtling towards one of the toughest calls of its monetary tightening campaign as it decides whether to switch from raising interest rates to lowering them. With the economy showing no signs of slowing down and inflation remaining a major concern, the Fed is likely to raise interest rates to at least 6.5%.
The Fed head's testimony before the Senate Banking Committee on Tuesday telegraphed a growing chance the central bank could lift rates by its next meeting in March. The Fed is expected to raise rates by 25 basis points, which would be the eighth increase in the Fed Funds rate since mid-2015.
The US Federal Reserve could raise interest rates to 6% and keep them there for an extended period of time to fight inflation, said Rick Rieder, BlackRock’s chief investment officer of global fixed income. We think there's a reasonable chance that the Fed will have to bring the Fed Funds rate to 6%, and then keep it there for an extended period of time, he said.
The Fed funds rate is at its highest level since 2007. Modest hikes shouldn't cause major market upheaval, but aggressive hikes could be more disruptive. As the US economy holds up better than expected in the face of aggressive interest rate hikes, markets have started pricing in a higher probability of further rate hikes by the Fed.
There are plenty of high yield income stocks investors should consider buying, particularly as the Fed hikes interest rates to 5% and beyond. With rates rising, investors should look for stocks with higher dividend yields to offset some of the losses from the rate hikes.
The US Federal Reserve will announce its policy decision and quarterly interest-rate projections on March 22. After hot recent economic data, traders and investors are pricing in a higher chance of the Fed raising interest rates to 5% or higher.
The U.S. Federal Reserve is likely to hike interest rates to at least 6.5% if the economy does not enter a mid-year recession, according to a survey of economists. The survey found that the majority of economists expect the Fed to keep raising interest rates until at least the end of the year.
The Fed's rate hikes will have an impact on other markets, such as the bond market, where higher interest rates tend to lead to lower bond prices. Higher interest rates also make it more expensive for businesses and consumers to borrow, which can slow economic growth.
The Federal Reserve's rate hikes could also affect the stock market. Higher rates could lead to higher borrowing costs for companies, which could slow earnings growth. Higher rates could also lead to higher inflation, which could push stock prices lower.
It remains to be seen what the Fed will decide in terms of interest rate hikes. But it is clear that the US Federal Reserve is likely to raise interest rates to at least 6.5%.
Extract Anonymous Image Description: A graph showing increasing interest rates over time.