Interest Rate Hike

On July 26, the Federal Reserve raised interest rates a quarter point to 5.25%-5.5%, the highest level in 22 years. The increase comes after a long-awaited pause in June. Prior to June, the Fed issued 10 consecutive hikes aimed at slowing historically-high inflation. Although the Fed’s actions have successfully lowered inflation to 3%, the lowest in two years, the government is still battling to reach its target rate of 2%. Inflation has been persistent against the Fed’s best efforts, supported by a strong labor and wage market. Over the past three months, job gains averaged 244,000 jobs per month, with an unemployment rate of 3.6%, according to the Fed. Consumers have also been more immune to the ongoing increases due to the majority of consumer debt being at a fixed rate, most notably mortgages.

70% of mortgages are below a 4% interest rate despite the average 30-year mortgage rate being 7.35% as of July 31 – Equifax and Curinos

The July increase marked the fourth hike this year, causing consumers to wonder if more hikes will come before yearend now that inflation is within one percentage point of the target rate. Unfortunately, some economists predict the last mile of decreasing inflation may be the most difficult, as stated by the Wall Street Journal. Price stability is the Fed’s number one concern long-term, and although pricing has lowered over the past few months, it is still well above 2%. The 12-month change in the consumer price index was 3%, while the Core Consumer Price Index was 4.8% in June. The Fed once again stated they are committed to the target rate and will continue to evaluate economic activity to determine if further hikes will be needed. Chairman Jerome Powell stated, “Looking ahead, we will continue to take a data-dependent approach in deterring the extent of additional firming that may be appropriate.” Most likely, the Fed will not induce a rate hike during their September 20 meeting, but one more hike either in November or December is possible.