Are we there yet? No one can say for sure. The Federal Reserve once again hit pause on interest rates at its September meeting but left the door open for at least one additional hike in 2023.
The most important question for investors now, however, is not how high will rates go but rather, how long will high interest rates last?
The answer will depend on the data. The most important indicator, of course, will be inflation. The core Consumer Price Index (CPI), which strips out volatile components like food and energy, fell to 4.3% for the year ending August 31, from 4.7% in July. Labor data has also begun to cool, with job openings, wage growth and hiring numbers all slowing down. The federal funds rate target range currently stands at 5.25% to 5.50%, its highest level in 22 years.
The Fed’s board of governors moved their rate projections higher for next year, penciling in just 50 basis points in potential cuts, compared to a 100-basis point reduction in the June forecast. But the timing of those cuts is yet to be determined.
In remarks following the Fed’s announcement, Chair Jerome Powell struck a hawkish tone, indicating the central bank is concerned that continued economic growth in the U.S. could reignite inflation. He avoided explicitly stating what could move the central bank to cut rates.
What does this mean for your wallet? Be sure you are minimizing carrying any credit card debt and be sure to review the interest rates on your savings accounts. The best savings/MMA rates are 5.25%. Need more insight on your financial plan? Reach out and schedule your free initial meeting.
Read more on what the Fed is up to here. (Source: Capital Group’s Capital IdeasTM)
Your weekly market update is here.
