Another Federal Funds Rate Increase Expected This Fall

Last week, the Federal Reserve, commonly known as the Fed, increased the federal funds rate by 0.25 points. The federal funds rate now sits at 5.25%-5.5%, the largest value in 22 years. In addition, the Fed made a statement regarding “determining the extent of additional policy firming that will be appropriate.” Policy firming refers to rate increases.

Barclays, a multinational bank based out of the UK, also noted a change in the Fed’s language regarding this policy. A prior statement by the Fed referenced “the extent to which additional policy firming¬†may be¬†appropriate.” Their new statement is significantly more certain about the appropriateness of additional policy firming, leading Barclays to believe that the Fed plans additional rate increases. Barclays predicts this will probably happen in September or November, which are the next two times the Fed meets.

However, it’s important to realize that the federal funds rate is not the same as mortgage interest rates. In fact, they aren’t directly related at all. Mortgage interest rates do frequently increase when the federal funds rate increases, but there are additional factors at play. These include demand and economic outlook. Both of these are somewhat mixed. Demand is not particularly high, but neither is supply. Our economy is currently in a recovery cycle, so it’s looking up, but isn’t necessarily stable. So, it’s definitely a possibility that interest rates increase some more, but not a guarantee.

Photo by Etienne Martin on Unsplash

More: https://www.usatoday.com/story/money/2023/07/26/fed-interest-rate-hike-live-updates/70463418007/