As widely expected, the Federal Reserve downshifted its pace of interest rate hikes on Wednesday, but once again stressed that it has more work to do in its ongoing efforts to bring inflation under control.
The Federal Open Market Committee (FOMC) raised the short-term federal funds rate by 25 basis points, or 0.25%, to a target range of 4.50% to 4.75%. The move was no surprise to economists and market participants, who were betting on yet more moderation from the central bank's rate-setting committee.
At the Fed's last meeting in December, it raised rates by 50 basis points, which represented a significant slowdown from previous policy decisions. Prior to the December meeting, the FOMC had raised short-term rates by 75 basis points for four consecutive meetings.
Subscribe to Kiplinger’s Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When Is the Next Fed Meeting?
The central bank has been raising borrowing costs at the fastest and steepest pace since the early 1980s in a bid to tame the worst inflation seen in four decades. But with inflation appearing to have peaked in 2022, the Fed has somewhat softened its hawkish stance.
Markets applauded the quarter-point rate hike unquestionably. All three major indexes shifted from red to green following Fed Chief Jerome Powell's mid-afternoon press conference. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all finished the session with gains.
To get a sense of what the latest Fed decision means for monetary policy, markets and macroeconomics, below please find a selection of commentary from economists, strategists and other market pros, sometimes edited for clarity and brevity.
What the experts are saying
"As universally expected, the FOMC raised its target range for the federal funds rate by 25 bps at the conclusion of its policy meeting today. But the tightening cycle likely is not over yet as the FOMC noted that it 'anticipates that ongoing increases in the target range will be appropriate.' The FOMC said that 'inflation has eased somewhat,' which Chair Powell reiterated in his post-meeting press conference. But he also noted that the Committee 'has more work to do' in terms of monetary tightening to bring inflation back to the FOMC's target of 2% on a sustained basis. Powell also stated that policy will need to be restrictive for some time. We look for the FOMC to hike the fed funds target rate by 25 bps each at its next two policy meetings. That said, we do not have a high level of conviction regarding the exact amount of tightening that the Committee will need to deliver. The FOMC is in the fine-tuning stage of its tightening cycle, and future rate hikes will depend on incoming data in coming weeks and months." – Jay Bryson, chief economist at Wells Fargo Economics
"The Federal Reserve (Fed) increased the federal funds rate by another 25 basis points and indicated that they will continue to look at incoming data to decide on the next steps regarding monetary policy. However, although there was not a hint at the terminal rate on the statement, the Fed Chairman indicated that there could be 'a couple of more rate hikes from here.' He also said that we will have to wait until the March Summary of Economic Projections to see where the members of the FOMC see the terminal federal funds rate." – Eugenio Alemán, chief economist at Raymond James
"Today's policy statement from the FOMC, and Chair Powell's press conference, were signals to economic observers and to market participants that the job of inflation-fighting isn't yet accomplished, but the trend is moving in the right direction. Consequently, the Federal Reserve can now move policy rates at a more normal pace, after a series of dramatic moves, from very large (75 basis points, bps, for 4 meetings), to large (50 bps at the last meeting) and finally now to a more normal 25 bps clip. The Fed will now embark upon a process of slow and steady rate hikes of 25 bps moves, in order to better observe the incoming data and be able to react accordingly. The direction of travel from here will be another 25-bps hike, and maybe one more after that. Yet we're very much now in the mode of slow and steady hiking toward an end state of resting at a restrictive interest rate policy level of around, or just above, 5%." – Rick Rieder, BlackRock's chief investment officer of Global Fixed Income and head of the BlackRock Global Allocation Investment Team
"After today's decision, the fed funds upper bound is higher than the latest reading on the core deflator. Inflation is poised to ease further in the coming months, which will give the Fed some leeway to end its rate hiking campaign. History shows us that stocks typically rise after the end of a rate hiking cycle." – Jeffrey Roach, chief economist at LPL Financial
67 Best Dividend Stocks You Can Count On in 2023
"One comment that stuck out to me was Powell's lack of concern for the easing of financial conditions which had been a real concern for us. He said they focus on long-term financial conditions and not short-term conditions. Powell pointed to believing that financial conditions have tightened due to hiking from the last 12 months. The market expects inflation to move down more quickly than the Fed; it's pricing in fewer hikes (lower terminal rate and faster cuts). Powell said unless inflation drastically comes down, it will not be appropriate for the Fed to cut policy rates this year." – John Luke Tyner, portfolio manager and fixed-income analyst at Aptus Capital Advisors
"The Fed is tasked with walking an increasingly challenging tightrope. On one side there are concerns of appearing too dovish and risk inflationary measures reigniting within the economy, a mistake made in the 1970s. On the other side, concerns of continuing its tightening and pushing the economy into recession are very real as is often the end result of rate hike cycles. Inflationary data points have been moving in the right direction in previous months, but has it softened enough to allay concerns of inflationary sparks reigniting? This remains to be seen as we appear to be near a tipping point in Fed actions." – Dustin Thackeray, CFA, partner and chief investment officer at Crewe Advisors
"Chair Powell attempted to walk a fine line in comments today. On the one hand, Powell repeated several times that the FOMC sees 'ongoing rate increases' (plural) as likely appropriate, signaling that he and the committee continue to see the fed funds rate most likely peaking at a range of 5.0% to 5.25%, which is where the December Summary of Economic Projections (SEP a.k.a. dot plot) showed the fed funds rate concluding the year. Powell emphasized that the Fed is vigilant to the risk of inflation stays high in 2023, especially since inflation of sticky services prices (services excluding shelter costs) continues to run hot. On the other hand, Powell acknowledged that the disinflationary process the Fed expected, with supply chains normalizing and goods prices cooling, is finally playing out, and it makes sense to think this disinflationary process would spread more broadly to services prices in the near-term." – Bill Adams, chief economist at Comerica Bank
"The Fed is sticking to its two-hike SEP projection for now. However, we judge the data on the ground will shift enough (i.e., an unfolding mild recession) to convince the FOMC to make it only one. However, if the data doesn't shift meaningfully, the Fed's going to continue tightening." – Michael Gregory, deputy chief economist at BMO Capital Markets
"No big surprise in today's announcement, either in the level of rate increase or in the accompanying language. However, traders are expecting a rate cut late in the year, and there was no particular indication that would happen either. I read the notes as more staying the current course and seeing what happens in the economy over the next few months. Therefore, if traders were hoping for indication of a rate cut, they were disappointed. The recent strength in stock prices probably reflects the optimism of the Fed being able to engineer a soft landing, but that optimism may now be tested." – Melissa Brown, global head of applied research at Qontigo, a Deutsche Boerse-owned global index provider
"The Fed is essentially speaking out of both sides of the mouth as they signaled further increases are appropriate, but also acknowledged they will consider the cumulative amount of tightening in future policy decisions. This tells us that the Fed is near the end of the tightening cycle, and they are getting ready to sit tight while the economic data catches up to the policy. Slowing the pace of rate hikes is a clear sign that the Fed is getting comfortable with the idea that the prescribed policy for the economy is finally starting to work. On balance, the meeting tilted slightly dovish, and the end of the tightening cycle appears to be on the horizon." – Charlie Ripley, senior investment strategist at Allianz Investment Management
See Kiplinger's Economic Forecasts
A Fed rate increase can slow the economy by pushing up borrowing rates and raising the annual percentage rate on savings. If rates rise, it becomes more costly to borrow money. When the Fed boosts its lending rate, consumers and businesses can see increased costs for borrowing, which can discourage spending.How long will the Fed continue to raise interest rates? ›
When will the Fed stop hiking rates? Rates may be near that level now. Economists have long expected the Fed would likely stop raising interest rates at some point in 2023, but “where” rates peak — a level known as the “terminal” rate — is actually more important than “when.”How high will CD rates go in 2023? ›
The Federal Reserve approved its first rate hike of 2023 in February, raising the target federal funds rate to between 4.50% and 4.75%.When the Fed wishes to increase interest rates it will most likely? ›
Answer and Explanation: If the Fed wants to increase interest rates, it should make an open market sale. This would decrease the money supply and achieve an increase in interest rates.How can I benefit from high interest rates? ›
- Open a high-yield savings account. ...
- Open a certificate of deposit (CD) account. ...
- Lock in rates for loans before they go higher. ...
- Invest in corporate bonds.
Will CD rates go up in 2023? The answer is already yes. At both the January and the March 2023 Federal Open Market Committee (FOMC) meeting, the Fed raised interest rates by a quarter of a percentage point.Will interest rates go down in 2023? ›
Mortgage rates are likely to decrease slightly in 2023, although they're highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time.Will Fed interest rates go down in 2023? ›
1) Interest-rate forecast.
We project a year-end 2023 federal-funds rate of 4.75%, falling to about 2.00% by the end of 2024. Further out, our 2026 and long-run projection for the fed-funds rate and 10-year Treasury yield are 1.75% and 2.75%, respectively.
The Fed - May 2-3, 2023 FOMC Meeting.Which bank gives 7% interest on savings account? ›
While 7% with Landmark Credit Union is the highest available interest rate, other high-yield savings accounts exist and may be more worth it based on each bank's unique requirements.
Several economists have made interest rates forecasts for 2023, which give some insights for the direction of CD rates. Bankrate forecasts high but steady interest rates for 2023, with a federal funds rate between 5.25% and 5.50% and a national average for 1-year CD rates of 1.8%.What is the best CD rate for $100000? ›
|BEST NATIONAL JUMBO CDs|
|My eBanc||5.25% APY||$100,000|
|Connexus Credit Union||5.16% APY||$100,000|
|Lafayette Federal Credit Union||5.15% APY||$100,000|
|Best non-Jumbo option: Premier Members Credit Union||5.25% APY||$500|
They provide insight into interest rate forecasts over 5 years. An interest rate forecast by Trading Economics, as of 2 March, predicted that the Fed Funds Rate could hit 5% in 2023, before falling back to 4.25% in 2024 and 3.25% in 2025.Do banks make more money when the Fed raises interest rates? ›
Interest rates and bank profitability are connected, with banks benefiting from higher interest rates. When interest rates are higher, banks make more money by taking advantage of the greater spread between the interest they pay to their customers and the profits they earn by investing.What is current Fed rate? ›
Effective Federal Funds Rate is at 5.08%, compared to 5.08% the previous market day and 0.83% last year. This is higher than the long term average of 4.60%. The Effective Federal Funds Rate is the rate set by the FOMC (Federal Open Market Committee) for banks to borrow funds from each other.Which bank gives 6% interest in savings account? ›
Mango Money pays up to 6% APY on the Mango Savings account. To start, you must open a Mango Card, a prepaid debit card. You don't need a credit check, and there's no activation fee; plus, all cardholders can open a savings account with a $25 deposit. You can earn up to 6% APY on balances of $25 to $2,500.What was the highest interest rate in history? ›
Interest rates reached their highest point in modern history in 1981 when the annual average was 16.63%, according to the Freddie Mac data. Fixed rates declined from there, but they finished the decade around 10%.Where are interest rates going in the next 5 years? ›
The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.What is the highest paying 12 month CD? ›
- Premier Members Credit Union – 5.25% APY.
- INOVA Federal Credit Union – 5.25% APY.
- BrioDirect – 5.25% APY.
- CFG Bank – 5.25% APY.
- Forbright Bank – 5.20% APY.
- Bread Savings – 5.20% APY.
- TotalDirectBank – 5.16% APY.
- Mountain America Credit Union – 5.15% APY.
|BEST NATIONAL CDs|
|First National Bank of America||4.50% APY||7 years|
|Department of Commerce Federal Credit Union||4.34% APY||5-7 years|
|Credit Human||4.20% APY||7 years|
|Discover Bank||4.10% APY||6 years|
Unfortunately, no such CD is currently available as of March 2023. The federal funds rate would have to rise about 1% for CD rates to reach this level. While this is possible in 2023, the rate of inflation may outweigh the benefits of a 6% CD rate.How high will US interest rates go in 2023? ›
Rates will keep rising in 2023
In December, the FOMC projected that the median Federal Funds Rate (FFR) in 2023 would be 4.6 percent. This projection was revised in March, with the FOMC projecting the FRR to hoover between 5.1 and 5.6 percent in 2021.
The Fed penciled in a 5-5.25 percent peak interest rate for 2023, after which officials see rates falling to 4.25-4.5 percent by the end of 2024.Will home interest rates go down in 2024? ›
The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.When should we expect the interest rates to go back down? ›
The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.What will the Federal Reserve do in 2023? ›
The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 5.15 percent, effective May 4, 2023.What are the dates of the next Federal Reserve meeting? ›
- 2023 FOMC Meetings. Jan/Feb. 31-1. Statement: PDF | HTML. ...
- 2022 FOMC Meetings. January. 25-26. Statement: PDF | HTML. ...
- 2021 FOMC Meetings. January. 26-27. Statement: PDF | HTML. ...
- 2020 FOMC Meetings. January. 28-29. Statement: PDF | HTML. ...
- 2019 FOMC Meetings. January. 29-30. Statement:
The Fed has been raising borrowing costs to slow the economy and ease pressures pushing up prices. The first meeting of 2023 was scheduled for February 1st and will be followed by seven more on March 22nd, May 3rd, June 14th, July 26th, September 20th, November 1st, and December 13th.Where can I get 5% interest on my savings account? ›
- GreenState Credit Union Savings Account – 5.01% APY.
- Western Alliance Bank – 5.05% APY.
- 12 Months: Bread Savings – 5.20% APY.
- 27 Months: Sallie Mae – 5.15% APY.
- 3 Years: Ibexis Fixed Annuity – Up to 5.00% APY.
- 5 Years: Americo Fixed Annuity – Up to 5.25% APY.
On balances from 10 crore to less than 200 Crore in the account, DCB Bank will offer a maximum interest rate of 8.00% and on balances from 200 crore and above, the interest rate applicable is 5%.
- Invest in Stocks for the Long-Term. ...
- Invest in Stocks for the Short-Term. ...
- Real Estate. ...
- Investing in Fine Art. ...
- Starting Your Own Business (Or Investing in Small Ones) ...
- Investing in Wine. ...
- Peer-to-Peer Lending. ...
- Invest in REITs.
The best time to buy a CD is when interest rates are high or you have a specific savings goal that would be suited to a CD. The higher the interest rate on a CD, the more your money can grow during the maturity term. When rates are low, you earn less interest.Are CD accounts worth it? ›
CDs typically offer a higher interest rate than savings accounts, meaning you can earn more money on your deposit. This can be helpful if you are trying to save for a specific goal, such as a down payment on a house or retirement. Another benefit of CDs is that they are a low-risk investment.What is a jumbo CD? ›
What is a jumbo CD? A jumbo CD is like a regular CD but requires a higher minimum deposit, and in exchange, it can pay a higher interest rate. Jumbo CDs usually require a deposit of at least $100,000, though some banks may require less.How much can I make with $10000 CD? ›
A one-year CD with a $10,000 opening deposit that earns a yield of 5 percent would be worth around $10,500 when it matures in 12 months' time. This high-yielding one-year CD would earn you around $332 more in total interest than a CD earning the national average rate.What is considered a good 6 month CD rate right now? ›
|Certificate||Forbes Advisor Rating||Annual Percentage Yield|
|Quontic Bank Certificate of Deposit||4.2||3.75%|
|Consumers Credit Union Certificate Account||4.1||0.65%|
|Bethpage Federal Credit Union Certificate Account||4.0||4.75%|
|PenFed Credit Union Money Market Certificates||4.0||2.70%|
Interest on certificates of deposit (CDs)—like interest paid on any bank account—is taxable by the IRS. Here's how CD yields are taxed and what to know about reporting interest income on your tax return.What is the projected prime rate for 2023? ›
|June 30, 2023||6.47%|
|March 31, 2023||6.50%|
|December 31, 2022||6.50%|
|September 30, 2022||6.50%|
When the Fed raises the federal funds target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments.What happens to the stock market when the Fed raises interest rates? ›
Additionally, when interest rates rise, investors may shift their investments from the stock market to bonds or other fixed-income securities, which become more attractive due to the higher interest rates. This can lead to a decline in the stock market as investors sell off their stocks.
Just as the Fed doesn't control interest rates on consumer lending, it doesn't set rates for savings accounts, either.How does Fed rate affect mortgage rates? ›
The Federal Reserve doesn't set mortgage rates, but its actions indirectly affect mortgage rates. As of its meeting of May 3, 2023, the Fed has raised a benchmark interest rate by a total of 500 basis points, or 5 percentage points, since the central bankers began raising interest rates in 2022.What happens to the value of the dollar when interest rates rise? ›
The impact of interest rates on currency values
The interest rate in a country is the return on investment for the country's currency. As a result of interest rates rising throughout 2022, the value of the U.S. dollar also increased compared with other currencies, making the U.S. dollar attractive to global investors.
Effective Federal Funds Rate is at 5.08%, compared to 5.08% the previous market day and 0.83% last year. This is higher than the long term average of 4.60%.Why do interest rates rise with inflation? ›
If the MPC feels inflation is rising too quickly, it may try to limit it by raising the base rate. When the base rate goes up, interest rates may go up.Will my mortgage payment go up if the Fed raises interest rates? ›
Therefore, a higher federal funds rate means higher mortgage rates for buyers. This has several effects: You wind up qualifying for a lower loan amount. The amount of a preapproval from lenders is based on both your down payment and the monthly payment you can afford based on your debt-to-income ratio (DTI).Will mortgage rates go down if Fed raises rates? ›
However, the Fed does set one crucial rate: the federal funds rate. This rate can have impacts that trickle down to sway rates on consumer lending products like credit card APRs, savings account APYs, auto loan rates, and even mortgage rates.What do rising interest rates mean for home buyers? ›
When the Fed raises interest rates, mortgage rates almost always go up too. And a mortgage lender won't lend you as much since higher interest rates increase your debt-to-income ratio—that means you'll have less buying power when you're shopping for a house.Is the U.S. dollar losing value? ›
We generally look at indices that compare the dollar's value to the values of a broad range of currencies, weighted according to the value of their trade with the U.S. By most measures the dollar has fallen by about 8% to 10% in both real and nominal terms since late last year.Are countries dropping the U.S. dollar? ›
Countries worldwide are dropping the US dollar: De-dollarization in China, Russia, Brazil, ASEAN. The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar.
Iranian Rial (IRR) 1 INR = 516 IRR
The Iranian rial tops the list of the cheapest currencies in the world. The fall in the value of the currency can be explained by various factors. To begin with, the termination of the Islamic Revolution in 1979 was followed by foreign investors' withdrawal from the country.
Basic Info. 5 Year TIPS/Treasury Breakeven Rate is at 2.22%, compared to 2.22% the previous market day and 3.06% last year. This is higher than the long term average of 1.91%.Is inflation good for interest rates? ›
Inflation can impact interest rates because the role of central banks such as the US Federal Reserve is to keep control of inflation. Interest rates and inflation tend to move in the same direction – when inflation is increasing, banks will increase interest rates to encourage people to spend less and save more.Do interest rates need to be higher than inflation? ›
In general, higher interest rates are a policy response to rising inflation. Conversely, when inflation is falling and economic growth slowing, central banks may lower interest rates to stimulate the economy.