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Anticipating the Tides: Will The Fed Hit Pause on Interest Rate Hikes?

September 18, 2023
By Anders Staxen
Investments Intern

Perhaps you've stood near the ocean, eyeing the waves as they tactfully move inward before they hit the dock. They look so consistent in their movement as if you could predict where the next tip of the wave would appear. However, one also has to acknowledge that it is harder to predict than first anticipated. Waves in the ocean have a tendency to be predictable and unpredictable simultaneously.

Likewise, economists have for months tried to predict the movement of the Federal Reserve’s interest rate, to get an idea when it would be possible to borrow money at lower rates. On Sept. 20, the Federal Open Market Committee (FOMC), the monetary decision making body of the Federal Reserve, will announce its latest interest rate decision.

At the last meeting in July, the FOMC pushed the interest rate to 5.25%-5.50%, marking the 11th rate hike of this cycle and the highest level since 2001.

European Central Bank and the Consumer Price Index

So, where will the interest rate be after Wednesday? The market is expecting the interest rate to remain at its current level with a 97% probability. A pause would be in contrast to the European Central Bank which, on Thursday, increased its interest rate by a quarter of a point to a record high of 4%.

However, it is important to note some differences in these two cases. For example, the inflation level in Europe is currently at 6.10%, which is significantly higher than the 3.30% inflation level seen in the United States as measured by the Personal Consumption Expenditures price index (PCE), the Federal Reserve’s preferred measure of inflation.

With that said, however, another way of calculating inflation is by using the Consumer Price Index (CPI), which came out on Wednesday. The CPI for August came in at 3.70% for the year, higher than the 3.20% we saw in July. CPI for the month came in at 0.60%, in line with expectations. Nevertheless, concerns about inflation are strengthened by reports saying oil markets could experience a tighter supply and higher prices for the remainder of the year.

Retail Sales

Last week, we also saw the retail sales report for the month of August. It came in at 0.6%, higher than the forecast of 0.2% and the 0.5% rise in July. Retail sales are an important gauge of consumer spending as it accounts for the majority of economic activity.

Much More Data in the Ocean

While there are many more variables to look at, these are just some factors the Federal Reserve will take into account before making its final decision. While we have seen an uptick in both variables recently, it appears they are both still trending downward, which consequently lessens the need for a rate hike.

Whether or not the economists and the market are right, the Wealth Management team at Security National Bank is here to help go through the ever-changing market tides.  If you would like to review your portfolio allocation, don’t hesitate to contact your wealth management advisor today.  Your financial success matters to us!

About the Author

Anders Staxen

Anders Staxen is an Investments Intern in the Security National Wealth Management Division. Anders is currently attending Morningside University, pursuing his Bachelor of Science degree in business administration and finance; along with a Bachelor of Arts in political science.