The Fed is expected to announce another interest rate hike after this week’s FOMC meeting. This would be the central bank’s eighth consecutive rate hike.
In December, the Federal Reserve approved a 50 basis-point increase, raising the benchmark federal funds rate to a range of 4.25-4.50%.
However, experts predict that officials will announce a smaller hike on Wednesday of 25 basis points. That would push the benchmark rate to a range of 4.50–4.75%.
During its fight against inflation last year, the Fed hiked rates by 425 basis points.
Critics like Wharton Professor Jeremy Siegel warn that the central bank needs to ease up on monetary policy or it risks pushing the economy into a recession.
“We have to get no more than 25 basis points,” Siegel said in an interview with CNBC. “Fifty would be, I think, a disaster. We need to get 25, but we also need to get the messaging that not only does the Fed see that their policy is working but that they are very near the end of their tightening…”
He said the market would not respond well to the Fed saying it has “more work to do.” In fact, Siegel said 25 basis points is “all the Fed should do.”
With rates ticking higher and higher, many are left questioning when the hikes will end.
Based on December’s Fed minutes, officials don’t plan on ending hikes in the near future. Only two of 19 Fed policymakers believe rates will remain below 5% in 2023.
Loretta Mester, the President of the Cleveland Fed, told the Associated Press that her target rate is above 5%.
“We’re not at 5% yet, we’re not above 5%, which I think is going to be needed given where my projections are for the economy. I just think we need to keep going.”
Some experts, like Kathy Bostjancic, the Chief Economist at Nationwide, said they can also see the Fed pushing past that 5% mark.
Bostjancic told MarketWatch that she believes the Fed will raise rates in March and May by 25 basis points before pausing. That would bring the benchmark rate to a range of 5–5.25%.
At this point, it’s still a waiting game for the American people.
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