When is the Next Fed Interest Rate Hike?

What is Fed Interest Rate Hike?

A Federal Reserve (Fed) interest rate hike refers to an increase in the federal funds rate, which is the interest rate at which banks lend money to each other overnight.

What is the Federal Reserve?

The Federal Reserve is the central bank of the United States, and one of its primary tools for managing the economy is the manipulation of interest rates. The Fed Fund Rate is 5.5%, making it more expensive to borrow money. 

Reasons for Hike in Interest Rate

• Controlling inflation: One of the primary objectives of the Fed is to maintain price stability. When the economy is growing too quickly, and inflation is rising, the Fed may raise interest rates to cool down economic activity and reduce inflationary pressures.
• Currently, inflation is at 3.18%. “Getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth as well as some softening in labor market conditions,” according to Fed Chair Jerome Powell.
• Managing economic growth: The Fed may raise interest rates to slow down economic growth and prevent it from overheating. This can help prevent the economy from entering a period of unsustainable growth followed by a sharp downturn.
• Strengthening the currency: Higher rates can lure foreign capital, elevating the value of the U.S dollar. A stronger dollar can have various effects on the economy, including making exports more expensive and imports cheaper.
• Encouraging saving and investment: Higher interest rates encourage more saving and less investing due to increased borrowing costs. This can help to balance consumer spending and investment in the economy.
• Fostering financial stability: The Fed may raise interest rates to curb excessive risk-taking in financial markets. Low interest rates can drive investors to riskier assets, possibly causing asset bubbles and financial stability.

Impact on the Economy

The impact of a Fed interest rate hike on the broader economy can be significant. It can lead to higher borrowing costs for consumers and businesses, potentially slowing down economic activity and reducing consumer spending. Higher interest rates can make bonds more attractive, potentially impacting stock market appeal.

Higher interest rates benefits savers and investors seeking improved returns on fixed-income securities like bonds and CDs.

A Fed rate hike, used to meet economic goals, variably impacts the economy depending on timing, magnitude, and current conditions.

When is the next Fed Interest Rate Hike?

To stay up to date on upcoming FOMC meetings, please refer to Federal Reserve Calendar. By staying tuned with the meetings, you can learn when the next Fed interest rate hike will be.

Categorised in: Finance

This post was written by Adrian Yang