The FED projects the interest rate hikes to as high as 5.1%, as one of the major tools to fight back inflation. The interest rate will keep rising until the inflation comes to an end. The official median forecast was released earlier this day on Wednesday.
The new hike will deliver a higher expected terminal rate than projected by the FED in September. Just to remind you, the forecasts were around 4.6%. What’s more, the expected rate of 5.1% is almost equal to a target range that is currently between 5% and 5.22%.
The Fed officially announced a 50-basis point rate hike that is aimed at taking the borrowing range to the targeted one keeping it around 4.25% and 4.5%. By the way, it is the highest rate in the last 15 years. The FED used a so-called dot plot to express the potential outlook for what path the interest rate is about to follow.
The plot shows 19 dots, 17 of which would take rates higher than 5% in 2023. It means, more than half of the committee members expected the rate to rise above 5.25% during the following year.
The FED Chairman Jerome Powell projects the interest rate to decline and drop to 4.1% in 2024. It is still even a higher level than was predicted earlier. Powell says, they will stay the course until the job is done during the battle with inflation.
Of course, interest rate hikes will have a negative impact on economic growth. They will slow it down. As a result, The Summary of Economic Projections expects GDP gains of only 0.5% in 2023. The level is barely above what we can call a recession.
Investors should keep an eye on the situation. Even the current forecast can not be that precise. Interest rate hikes can be even stronger. So, make sure your portfolio is well-diversified. If you have difficulties with understanding what to do, join our copy trading platform to invest with the industry’s top experts.