The Federal Reserve has raised interest rates to their highest level in 22 years in an aggressive bid to curb inflation, and there’s a chance that more rate increases may still be on tap if the economy’s strength causes inflation to rebound.
Investors looking ahead to the next phase of the Fed’s strategy are now asking themselves how much longer will rates stay this high? But inflation’s uncertain path makes that a tough question.
“Rather than arguing about the peak rate, of how many more rate increases do there need to be, what we should probably start thinking about is how long does this last, that you’re going to be at these elevated rates,” Federal Reserve Bank of Chicago President Austan Goolsbee said earlier this month.
Some investors are betting on rate cuts as soon as early next year, perhaps on expectations that the economy might soon deteriorate. If unemployment spikes because of higher interest rates, for example, the Fed would likely cut rates to stem job losses under its mandate of maximum employment.
However, the Fed hasn’t given any hint of rate cuts just yet. In fact, according to minutes from its last meeting in July, quite the opposite seems likely: more rate hikes this year.
The Fed’s tough talk has rattled the bond market, helping push up long-dated yields. The yield on the 10-year US Treasury note hit 4.3% on Thursday, its highest level in over a decade.
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Source: edition.cnn.com
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