Interest Rates. On the Rise Again?

Business

Jorden McVeagh, Editor

rising interest rates

What do Rising Interest Rates Mean for Your Money? | Access Wealth 

This upcoming Wednesday Sept. 21, The Federal Reserve will meet to discuss the topic of raising interest rates once again. The past two meetings have resulted in two interest rate hikes which is significant since they haven’t raised rates since 2018. However, since March alone, the Fed’s benchmark policy rate has risen 2.25% and it stands to go up again after Wednesday’s meeting. After the meeting concludes interest rates once again will receive a bump of three quarters of a point which would bring rates to 3%. In addition, they also could raise rates by as much as an entire percentage point which would bring rates to 3.25%. All around Wall Street it is a back-and-forth discussion between whether or not people think the Fed will continue raising interest rates until November or if inflation will slow down so the central banks can relax for a little. 

Forecasts for the last quarter show that interest rates could rise to as high as 3.5-4% by November and jump up to 3.75-4.5% in December. When it comes to answering the question “do you think this will slow down anytime soon?” economists believe that there is still more to come in the future. Inflation is still rather high in comparison but has gone down over the past year. Before August, the national inflation rate sat at 8.52% with it now sitting at 8.26%. This is certainly moving in the right direction, but still up from last year’s closing rate of 5.25%.

Even though interest rates are still high, this still doesn’t mean the economy is struggling all around. The job market is sitting in an amazing position right now with an unemployment rate of 3.7% equaling 6 million people across the US without work. To put it into perspective, it is generally accepted that an unemployment rate between 4-5% is full employment. Full employment refers to the economic system where anyone who wants to and is able to work is employed. In addition, consumer spending is also still going strong. We are seeing consumer spending numbers at a higher level than it was during the COVID-19 pandemic period, it is still strong with consumers spending $1.392 trillion (USD) in the second quarter of 2022. This is up slightly from the $1.388 trillion that was spent in the first quarter of 2022. 

Finally, the housing market is still high even with the spike in interest rates in the past months. These rate hikes could prove to be costly in the long run though, as too many hikes could result in sending the US economy into a mild recession according to Chief Investment Officer at Girard Timothy Chubb. These hikes could also shift the stock market substantially in terms of market volatility. With interest rates still rather unpredictable, investors have no idea what forecasts for later in the year could look like. July 2023 forecasts have rates anywhere between 3.25-5% which would result in other central banks, such as the European Central Bank, to increase rates as well to keep the market in some sense of balance. If this were to happen it would make the markets that much more volatile making it harder to predict whether a stock price will go up or down based on other market occurrences.

While it is unknown what will happen this week and in the coming months, it will be interesting to see what happens and how it continues to impact the global economic environment. 

 

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