After a two-day monetary policy meeting, the Federal Reserve announced that it would keep the target range of the federal funds rate unchanged at 5.25% to 5.5%. According to the statement issued by the Federal Reserve, recent economic indicators show that economic activities in the United States continue to expand steadily. Although employment growth has slowed down, it is still strong and inflation is still at a high level. However, the tightening of credit conditions for households and enterprises may have an impact on economic activities, employment and inflation, although the extent of the impact is uncertain.
The statement pointed out that when deciding the degree of further tightening of monetary policy, the Fed will consider the cumulative tightening degree, the lagging influence of monetary policy on economic activities and inflation, and the factors of economic and financial development. In addition, the Fed also indicated that it will continue to reduce its holdings of US Treasury bonds and institutional bonds, and is firmly committed to the goal of restoring the inflation rate to 2%.
The Federal Reserve also released the latest economic outlook forecast, raising the US economic growth forecast to 2. 1% and 1.5% this year and next, and lowering the unemployment rate forecast to 3.8% and 4. 1%. Excluding food and energy prices, the core inflation rate is estimated to be 3.7% and 2.6% respectively, which is still higher than the inflation target of 2%.
According to the latest economic outlook, most members of the Federal Open Market Committee believe that the target range of the federal funds rate may rise to 5.5% to 5.75% this year. This means that at the two remaining monetary policy meetings this year, the Fed may raise interest rates at most once. In addition, most members expect the Fed to cut interest rates in 2024.
The impact of the Fed's interest rate hike on the economy and market;
1. Rising loan cost: When the Federal Reserve raises interest rates, the cost of bank borrowing funds will also rise. This may lead to an increase in loan interest rates, including housing loans, car loans and commercial loans. For individuals and enterprises, the increase of loan cost may reduce their borrowing ability and consumption expenditure.
2. Decline in return on investment: Raising interest rates may lead to an increase in interest rates in the bond market, thus lowering bond prices. This may lead to a decline in the return on investment of bond investors. In addition, the stock market may also be affected, because high interest rates may make investors more inclined to buy bonds than stocks.
3. Exchange rate changes: raising interest rates may lead to the appreciation of the US dollar, because higher interest rates make the US dollar more attractive. This may have a negative impact on the economies of exporting countries, because their products become more expensive, thus reducing export demand.