Top officials from within the United States Federal Reserve System will meet this week to discuss the economy and monetary policy, with a press statement expected on Wednesday. While there are no expectations that rate increases will be announced this week, it is widely accepted within the investment community that increases will be coming in September.
For investors, business owners, and even property owners, rate hikes are going to be important this year.
Federal Reserve, No Hikes Until the End of the Current Quarter
Historically, the Fed has held full press conferences when making major announcements, such as interest rate hikes. Because of this, most analysts believe that Wednesday’s statement will simply be an update on the economy and confirmation that the country is moving towards a 2% inflation target.
Strong economic performance is good news overall, but it also means that things are going to get more expensive, and investors should be concerned about this.
Higher interest rates could mean that companies become more cautious and make fewer investments. The hope is that recent corporate tax cuts will offset any negative impact, but it is yet to be seen how things will balance out.
Mortgages will become more expensive with rates rising, which could put a lot of pressure on the home market, particularly as prices are at their highest in years.
General interest rates for lending and credit cards etc. will also increase. There are some economists who fear that the growing economy will effectively cancel out the benefits of personal tax cuts. Lower and middle-income families will be most impacted.
How Good Is the Economy Right Now?
In the last quarter, the economy grew at a rate of 4.1%.
Consumer spending is the strongest driver of economic growth, however, rising interest rates later this year could reduce consumer confidence. Residential investment didn’t increase in the last quarter, which further reinforces the fact that the home market is unaffordable for many Americans today.
Rate hikes are interesting because they stem from positive economic growth, yet they can negatively impact businesses, investors, and consumers.
The Federal Reserve is trying to balance rate hikes with inflation growth and economic performance. For now, there are no new hikes expected until September, but Wednesday’s announcement will give us some further indication of where the Fed sees the economy heading in the next quarter.
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