However, the second half of the year depends on how the economy fares, if it weakens, then the Fed could be cutting rates later in 2023. In 2023, the first half of the year is expected to see the Fed reach a point where it can hold rates steady. However, high rates are also disrupting the housing market. The Fed expects holding rates here to be effective in bringing down inflation, and we’re seeing some signs that that may be working in late 2022, based on softer inflation numbers. Rates at this level are viewed as restrictive for the economy. The Fed may hold rates within a 4% to 5% band for some time in 2023. However, this is viewed as a less likely scenario currently. However, some fear that prospects of a recession, will mean that the Fed may feel the need to cut rates later in 2023. This means that Fed may reach a point to hold rates steady around the spring. Smaller hikes at the February and March meetings are considered probable, based on interest rate futures. An increase in rates is expected at the Fed’s last meeting of 2022. The question is how soon, and at what level, the Fed stops hiking rates.ĭespite a move to a pause in rates, that may not occur rapidly. The fed funds rate is now in a range of 2.25 to 2.5, and the Fed is targeting an end rate, or terminal rate, of 3.50 to 3.75 by the first quarter of next year. Should inflation data continue to ease, then it’s likely the Fed will cease hiking rates aggressively. Inflation Worries Markets expect the Fed to continue to raise rates early in 2023, due to. The key question that is likely dominate early 2023 is how to handle a pause in interest rates. The February decision is the first of eight scheduled meetings for the Fed to set interest rates in 2023. Of course, the Fed can set rates whenever it wishes, but we’ll only see rate decisions in these months if something more dramatic happens to the economy. In 2023, there won’t be any rate announcements in January, April, August and October.
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