The next phase of the Feds historic inflation fight is waiting for rate cuts
- The Federal Reserve has raised interest rates to their highest level in 22 years in an aggressive bid to curb inflation, and there’s a chance that more rate increases may still be on tap if the economy’s strength causes inflation to rebound.
- “The expectations of the (bond) market versus the Fed’s guidance suggests that the bond market is pessimistic (about the economy) because it’s betting we have four rate cuts, while the stock market is not,” Mark Hackett, chief of investment research at Nationwide, told CNN.
- “If the Fed sees that inflation goes below the 2% target, they could start decreasing interest rates, but I don’t think they are going to start decreasing interest rates until that happens,” said Eugenio Alemán, chief economist at Raymond James.
- Both investors and the Fed are closely watching consumer spending, which could signal either more rate hikes if spending heats up too much, or a recession and the increased likelihood of rate cuts if it cools too quickly.
- Some investors are betting on rate cuts as soon as early next year, perhaps on expectations that the economy might soon deteriorate.
- In addition to the possibility of cutting rates because of an economic downturn, the Fed could also cut rates if inflation slows too much.
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