Will Interest Rates Stay High or Soar Even Higher?

Key Features:

• The Federal Reserve is anticipated to maintain its primary interest rate for the second consecutive meeting on Wednesday.
• Market participants will closely monitor the remarks of Fed Chair Jerome Powell during his press conference on Wednesday afternoon, seeking indications of the Fed's inclination to increase interest rates in forthcoming meetings.
• The Fed's efforts to combat inflation through interest rate hikes have resulted in increased borrowing costs across various types of loans, including mortgages, credit cards, and auto loans.

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All attention is directed towards the Federal Reserve's Wednesday meeting, with the question of whether interest rates for different types of loans will stay at their highest levels in decades or escalate even further.

The central bank's policymakers are expected to keep the influential fed funds rate unchanged in their upcoming meeting, sustaining the pressure that has propelled typical 30-year mortgage rates to nearly 8% and pushed car loan interest rates to the point where monthly payments exceeding $1,000 are becoming commonplace.

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The Federal Open Market Committee (FOMC) decided to maintain the rate after raising it to a range of 5.25% to 5.50% in July during its last meeting in September.

Given that the rate decision is widely expected, based on the comments of Fed officials this month, traders will carefully observe the Fed's policy statement and the press conference led by Fed Chair Jerome Powell for hints about the possibility of rates climbing even higher before potentially decreasing in subsequent meetings.

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According to Michael Pearce, lead U.S. economist at Oxford Economics, the focus will primarily be on the post-meeting press conference, where Powell is likely to keep the door open for additional hikes but emphasize that these are contingent upon continued inflation and growth surprises.

The Fed aims to maintain interest rates at a level that curbs spending by individuals and businesses, slows down the economy, and reduces inflation to the Fed's target of a 2% annual rate. However, the aim is to avoid raising rates to a level that could lead the country into a recession.

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While some experts believe that the Fed has finished raising rates, largely due to the financial markets already tightening financial conditions, there's still a possibility that the Fed might increase the fed funds rate above its current 22-year high at the December meeting or in subsequent meetings.

Although recent reports have indicated a gradual decrease in inflation, and it remains significantly below the peak annual rate it reached last summer, other data suggests that there might still be upward pressure on prices that the Fed aims to counter with even higher rates.

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Despite consumers shrugging off higher interest rates on credit cards and other loans, economic indicators show potential signs of strain in consumers' spending power. With more individuals falling behind on payments for car loans and banks becoming more cautious about lending, borrowing for significant purchases has become more challenging alongside the increased cost.

With conflicting data, the central bank is expected to adopt a wait-and-see approach, as suggested by Ellen Zentner, chief economist at Morgan Stanley, and other economists.

Authors: Reese Fan Holmes C.

Editor: Raouf Boussaoui