2 Rate Hikes or Hold? Fed Predictions Vary From No Rate Hikes to 6% in 2023

Based on projections from the U.S. Federal Reserve, it is anticipated that the central bank will implement two additional increases to the federal funds rate within the span of 2023. As indicated by Fed policymakers, they estimate the benchmark bank rate to fall within the range of 5.5% to 5.75% by the end of this year. While there are those who predict the possibility of the Fed raising the rate to as high as 6% in 2023, not all market observers share the same level of certainty regarding the central bank’s decision to raise interest rates before the year concludes.

Some Doubt Fed’s Rate Hike Plans, While Others Brace for 6% Ceiling

For the next 23 days, the market will await the Federal Reserve’s next rate hike decision. On July 2, 2023, at 7:18 p.m. ET, the CME Fedwatch tool indicates an 84.3% probability that the central bank will raise the benchmark rate by 25 basis points (bps) to approximately 5.25% to 5.5%.

There is a 15.7% chance that the Fed will pause again at the July 26, 2023, Federal Open Market Committee (FOMC) meeting, according to the Fedwatch tool. Although the Fedwatch tool is generally accurate, its projections are based on market sentiment and are subject to change due to economic conditions and other factors.

Some believe the Federal Reserve policymakers’ current projection of ending the year with the federal funds rate at 5.5% to 5.75% will be realized. Last week, Mary Daly, the president of the San Francisco Federal Reserve Bank, said she considers two more rate hikes this year to be “reasonable,” but she also cautioned that the Fed should balance the risks of both “under- or over-tightening.”

There are still those who believe that the U.S. central bank will not raise rates further this year. For instance, Ryan Sweet, chief economist at Oxford Economics, stated to bankrate.com that he does not anticipate any additional hikes this year.

Economist Tuan Nguyen from RSM informed bankrate.com that there is the possibility of one more rate hike. “It’s important for the Fed at the moment to have all the options on the table,” Nguyen explained. “Whether it’s the July meeting or the September meeting, all of those meetings will be live, meaning the Fed will have the options of whether to pause or hike.”

In late May, Jamie Dimon, the CEO of JPMorgan, informed analysts and reporters that individuals “should be prepared for rates going higher from here.” At the time, Dimon mentioned the federal funds rate could potentially reach 6% or 7%.

Study Says 6.5% Bank Rate is Needed to Tame Inflation, Expert Insists ‘We’ll Wind Up Somewhere Around 6%’ This Year

A research paper written by Kermit Schoenholtz, a professor emeritus at New York University, Stephen Cecchetti from Brandeis University, Michael Feroli of JPMorgan Chase & Co., Frederic Mishkin from Columbia University, and Peter Hooper of Deutsche Bank AG suggests that the U.S. central bank might have to increase the federal funds rate to 6.5% in order to address inflation.

“Our analysis casts doubt on the ability of the Fed to engineer a soft landing in which inflation returns to the 2% target by the end of 2025 without a mild recession,” the paper details.

Tom Luongo, the publisher of “Gold, Goats ‘n Guns” told Kitco’s lead anchor and editor-in-chief Michelle Makori that he believes the rate will end up at 6% this year. “I think [Powell] will raise again, and possibly even raise multiple times before the end of the year,” Luongo said in an interview. “We’ll wind up somewhere around 6 percent by the end of the year,” he added.

Luongo also said that he believes more bank failures are coming. After the three largest bank failures in the U.S. in 2023, more banks are due to fail he said. “I just see the entire banking system imploding, detonating like a nuclear bomb,” Luongo told Makori.

What are your predictions for the Federal Reserve’s interest rate decisions in 2023? Will it reach 6% or remain unchanged? Share your thoughts and opinions about this subject in the comments section below.