Fed Expected to Raise Rates Again This Week

This week’s big event is the Fed meeting starting today and running through tomorrow, which is expected to yield another rate hike. This increase will raise the benchmark rate to a 16-year high, according to The Wall Street Journal (subscription).

Looking ahead: “‘We are much closer to the end of the tightening journey than the beginning,’ Cleveland Fed President Loretta Mester said April 20.”

Turmoil in the banking sector: Fed officials are likely to be watching how markets respond to the sale of First Republic Bank to JPMorgan Chase & Co.

“While analysts believe Monday’s deal may further resolve potential banking strains, officials could have to rethink a planned increase if severe and unanticipated financial stresses emerge before their meeting.”

The NAM’s take: NAM Chief Economist Chad Moutray weighed in, saying:

“While inflation has moderated and will likely continue to ease over the coming months, prices continue to increase solidly, particularly for key items, remaining ‘stickier’ than the Federal Reserve would prefer. As such, it will hike short-term rates at its May 2–3 meeting this week by 25 basis points before hitting the pause button.”
“Moreover, I expect that the Federal Open Market Committee will keep interest rates elevated for the rest of this year, and I do not expect a rate cut in 2023, contrary to what financial markets predict, unless the U.S. slips into a more severe recession than currently anticipated. (I would expect only a mild recession, with the chance of a soft landing still possible.)”