Federal Reserve set to raise interest rate by another 75 basis points

For now, the final rate is expected to be 3.8% in 2023, but given current inflation and its treatment, the Fed will have to adjust those numbers as well.

The Federal Reserve Open Market Committee (FOMC) is expected to wrap up its two-day meeting and the world is waiting with bated breath to see how much it will raise interest rates. The general forecast is that economists are expecting a 75 percent hike, which, if realized, would represent the third such interest rate hike by the Fed.

The economy is at a tipping point as inflation has remained very high. The Federal Reserve sees interest rate hikes as one of its bold attempts to curb inflationary growth, and it is willing to do so at any cost. Based on its determination, some analysts even predict that the Fed may announce a larger-than-expected interest rate hike, which could be as much as 100 basis points.

After the FOMC meeting, Fed Chairman Jerome Powell is expected to deliver a speech . The speech is expected to detail plans to continually raise interest rates until the level of inflation is brought back to the expected range of less than 4%, down from the current 8.3% recorded in August.

“I think he’s putting up a billboard behind him that says ‘inflation must go down’” said Rick Rieder, BlackRock’s chief investment officer for global fixed income. “I think he’s going to talk tough.”

In a surprising move, futures linked to the S&P 500 rose 0.23% while those linked to the Nasdaq 100 and Dow Jones Industrial Average rose 0.10% and 0.6%, respectively.

The potential interest rate hike will be of great importance to the broader financial ecosystem and will certainly determine the rate of recovery of most tickers in the U.S. economy. The Fed must have considered all the odds and whatever rate hike is announced should help achieve all of its intended goals.

Federal Reserve to raise interest rate and final rate

The Federal Reserve is not just announcing an interest rate hike, as there are other key forecasts to be revealed. One of these forecasts is the “final rate“, which represents the level at which interest rates will peak before the Federal Reserve stops its aggressive rate hikes.

For now, the terminal rate is expected to be 3.8 percent in 2023, but given current inflation and its treatment, the Fed will need to adjust these numbers as well.

Economists at Citigroup Inc expect the terminal rate to reach 5%, while analysts at Goldman Sachs think it will be between 4% and 4.25% by the end of the year. Strategists expect the rate to rise from a peak of 4.25 percent to 4.5 percent in 2023. If those estimates hold, they then expect a drop in 2024 and two more in 2025.