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Key Takeaways
- The Federal Reserve is widely expected to hold its key interest rate steady for a second meeting in a row on Wednesday.
- Investors will closely watch the words of Fed Chair Jerome Powell when he speaks in a press conference Wednesday afternoon for hints about the Fed's willingness to raise interest rates at future meetings.
- The Fed's campaign of anti-inflation interest rate hikes has pushed up borrowing costs for all kinds of loans including mortgages, credit cards, and auto loans.
All eyes are on the Federal Reserve’s Wednesday meeting for hints about whether interest rates on all kinds of loans will remain at their highest in decades—or if they’ll go even higher.
Policymakers at the central bank are widely expected to hold the Fed’s influential fed funds rate steady when they meet next Wednesday, maintaining the pressure that’s pushed typical 30-year mortgage rates up to within a hair’s breadth of 8% and car loan interest to the point where payments over $1,000 a month are becoming commonplace. The Federal Open Market Committee (FOMC) opted to keep its rate unchanged when it last met in September, after raising it to a range of 5.25% to 5.50% in July.
With the rate decision considered a foregone conclusion based on the comments of Fed officials this month, traders will closely watch the Fed’s policy statement and press conference by Fed Chair Jerome Powell for clues about whether rates will go even higher before they move lower at future meetings.
“All the focus will be on the post-meeting press conference with Chair Jerome Powell, where he is likely to leave the door open to additional hikes but make clear that those are conditional on continued upward surprises to inflation and growth,” Michael Pearce, lead U.S. economist at Oxford Economics, wrote in a commentary.
The Fed’s goal is to keep interest rates high enough that individuals and businesses spend less money, the economy slows, and inflation recedes to the Fed’s goal of a 2% annual rate, but not so high that the country plunges into a recession.
Some experts think the Fed is done raising rates, largely because financial markets are doing some of the Fed’s work for it, making money harder to to come by. Yields on 10-year Treasury bonds, which influence borrowing costs on all kinds of loans, surged to a 16-year high earlier this week amid traders’ concerns about high inflation.
“With the markets doing the heavy lifting in terms of tightening financial conditions, the case for the Fed to remain on hold from here is strong,” Pearce wrote.
On the other hand, there’s still a chance the Fed will raise the fed funds rate above its current 22-year high at its meeting in December or the ones after. While recent reports have shown inflation is gradually falling, and remains well below the peak annual rate of 9.1% it hit last summer, other data shows there could still be upward pressure on prices that the Fed will try to smother with even higher rates.
For example, consumers have continued to ramp up their spending, shrugging off higher interest rates on credit cards and other loans, and flummoxing economists, keeping the economy growing at a faster pace than almost anyone expected a year ago. Employers are still adding jobs, not laying people off like they would in a recession. Shoppers may even be taking October’s resumption of required payments for federal student loans in stride.
But there are signs that consumers’ spending power is on the verge of cracking. More people are falling behind on bills such as car loans, and banks are getting pickier about who they lend money to and on what terms, making borrowing for big-ticket items more difficult at the same time that rate hikes have made it costlier. All the conflicting data likely leaves the central bank in wait-and-see mode, experts said.
“We expect the Fed to recognize recent strength in economic activity but, with tightening financial conditions, to soften guidance about the need for additional tightening,” Ellen Zentner, chief economist at Morgan Stanley, and other economists, wrote in a commentary.