Fed says "We're probably not done yet"
The Federal Reserve Board meets eight regularly scheduled times per year to vote on monetary policy and other financial regulations. Yesterday they concluded their most recent meeting by not changing short-term interest rates, but they included a warning that they are likely to increase rates again later this year.
The Federal Funds interest rate is holding at 5.33%. This rate has been higher than long-term rates for nine full months so far, which should slow down the economy over time. Every time the Fed has inverted interest rates for longer than 10 months, a recession has followed within 18 months of the beginning of the inversion. That would put us into a recession by the middle of next year, if history is our guide.
The Fed targets an inflation rate of about 2%/year, but currently inflation is at 3.7% and has been creeping back up over the past two months. So far it looks to remain at 3.7% this month. So the Fed will continue wanting to nudge interest rates higher until inflation gets all the way back down to 2% -- or until we enter a recession.
In addition to inverting interest rates, the Fed has also been shrinking the money supply for about the same length of time. It has not done this before (not since 1960 at least), so it isn't clear what the result will be. You'd imagine that shrinking the money supply would make it more difficult for people to spend, invest, or borrow money, all of which are important for economic activity.
But, the economy is still currently growing, with ongoing bubbles in stock and real estate prices, and unemployment below 4%. Everybody is hoping for a "soft landing" ...
The Federal Funds interest rate is holding at 5.33%. This rate has been higher than long-term rates for nine full months so far, which should slow down the economy over time. Every time the Fed has inverted interest rates for longer than 10 months, a recession has followed within 18 months of the beginning of the inversion. That would put us into a recession by the middle of next year, if history is our guide.
The Fed targets an inflation rate of about 2%/year, but currently inflation is at 3.7% and has been creeping back up over the past two months. So far it looks to remain at 3.7% this month. So the Fed will continue wanting to nudge interest rates higher until inflation gets all the way back down to 2% -- or until we enter a recession.
In addition to inverting interest rates, the Fed has also been shrinking the money supply for about the same length of time. It has not done this before (not since 1960 at least), so it isn't clear what the result will be. You'd imagine that shrinking the money supply would make it more difficult for people to spend, invest, or borrow money, all of which are important for economic activity.
But, the economy is still currently growing, with ongoing bubbles in stock and real estate prices, and unemployment below 4%. Everybody is hoping for a "soft landing" ...