Inflation is at an all-time high, but that hasn’t stopped the U.S. Federal Reserve from cutting interest rates by the year’s second quarter.
The Only Control During the Pandemic
During the pandemic, The Fed increased the interest rate to control high inflation in the hopes of slowing down investment and spending, which can help keep prices from spiking too quickly.
What’s up Must Come Down
Inflation peaked in mid-2022 but has since declined, albeit still higher than The Feds’ target level of 2%.
The Fed Has a Plan
Fed Chair Jerome Powell stated that The Fed is not far from completely slowing down the rates in order to avoid an economic downward spiral.
Hiking Rates Since March 2022
The central bank has had 11 rate hikes since March 2022, bringing down the annual inflation rate to 3,1% in January from a devastating 9,1% in June 2022. However, January’s rate was still higher than expected.
Credit Card and Mortgage Rates Soaring
Investors and consumers have been eagerly awaiting the cut, which will be the first one after two years of rapid increases, notably in credit card and mortgage rates.
A Pattern Is Seen as History Is Repeating Itself
Kristina Hooper, the chief global market strategist at Invesco, said, “History may be a guiding principle.” The Fed has been cutting rates for eight and a half months after increasing them, with the last increase cycle seen in the summer of 2023.
Soft Landing to Protect the U.S. Economy
Economic strategists have called this approach a ”soft landing,” a term used to explain how they will navigate the interest rate policy to avoid recession.
Economists Change Their Cut Prediction
Economists have since reported that despite the supposed set dates, they believe the cut will take place later than originally predicted.
Economist at a Loss for Prediction
One in ten economists has now predicted that the cut will take place after the proposed date, which was originally predicted to happen after the March 20 meeting.
Predictions Clash Seems Debatable
About one-third of the economists still believe that the rate reduction will occur after the May 1 meeting, down 90% from early predictions.
The Fed Has a Date
The Fed has earmarked the end of June as a rough estimate of when it will start reducing borrowing rates despite the new inflation data that has recently surfaced.
Investors Pushing up the Stocks
With the expectations that rates would be cut, investors have been pushing stocks higher which could potentially lower business costs but increase spending.
Rates to Remain the Same Until Further Notice
Due to the fact that credit products are based on the Fed’s benchmark rate, it will probably remain the same until the first cut is eventually set in motion.
Mortgages Treated Differently to Credit Products
Mortgages are slightly different as they are based on the 10-year Treasury yield as well as economic indicators such as inflation.
With Inflation, Mortgages Rise
Jacob Channel, an economist at LendingTree, said, “When inflation growth is worse than expected, mortgage rates often rise.”
Mortgage Rates at Six Percent
The increased inflation rate will raise mortgage rates, but Lawrence Yu, NAR chief economist, predicted that they will most likely settle towards 6% by the end of the year.
Waiting to Cut at the Right Time
Channel noted that the Feds are being very cautious about the cut to avoid cutting prematurely and, therefore, creating adverse effects.
Decreasing Inflation Set to Be the Real Timekeeper
Powell told CBS News that “before we take that very important step of beginning to cut interest rates,” they want to ensure that inflation is decreasing.
High Hopes for the June 12 Meeting
Economists polled by Factset have put their rate cut likelihood on the June 12 meeting as the first cut date, but time will tell.
Monitor With Each Proposed Fed Meeting
Borrowers will still pay the same skyrocketing rates until further notice; it’s best to keep abreast of each called Fed meeting to see the monitored outcome.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
