The Federal Reserve is set to raise interest rates again, perhaps for the last time in this cycle, economists said.
The Federal Reserve is expected to raise its benchmark interest rate by another quarter of one percentage point on Wednesday, in what could very well be the last rate hike of this cycle, economists said.
The 25 basis point move would push the Fed’s benchmark interest rate to a range of 5%-5.25%. That is seen by many as high enough to slow the economy and cool inflation. Traders in derivative markets have put the odds of a quarter-point rate hike at over 80%, roughly where it has been for weeks. Harris said the big problem for the Fed is to convince the bond market that they going to hold interest rates at persistently high levels.
The stress in the banking sector and a subsequent pullback of lending will trigger the downturn, she said. “That is not a bad outcome. This is an economy that overshot and needs to come back to normal,” Harris said.Economists think this will cool the economy in a way that is equivalent to one or two 25 basis point rate hikes, so that’s one reason for talk that the central bank is done raising rates.“I don’t think the Fed goes on a more permanent sounding pause until they feel like we’re slipping into a recession,” Harris said. Until then, there will be a bias towards tightening.
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