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Federal Reserve Expected to Pause Interest Rate Hikes
Wall Street Believes Interest Rate Hike Cycle is Over
Many on Wall Street believe that the Federal Reserve will not raise interest rates any further in the current cycle. Goldman Sachs economist David Mericle, who sees a lower probability of a recession than most, expects the Fed to have to do less to combat inflation. Goldman Sachs expects the Federal Reserve to let data guide their decision-making and not be tied to a specific formula for raising rates. Market pricing also supports this view, with traders in the fed funds futures markets placing odds of another hike before the end of the year at no higher than 35%.
Data Suggests a Pause in Tightening
Recent economic reports have helped strengthen the belief that the Federal Reserve will pause further tightening. Gross domestic product grew at a better-than-expected annualized rate of 2.4% in the second quarter. Additionally, a Commerce Department gauge revealed inflation running at just a 2.6% pace for the quarter, lower than the first three months of the year. Deutsche Bank and Morgan Stanley economists expect disinflation coupled with a softening in growth and the labor market to become more evident in the coming months, leading to the pause in tightening.
Differing Views on the Federal Reserve's Next Move
While many on Wall Street expect the Federal Reserve to pause interest rate hikes, not everyone agrees. Bank of America, Citigroup, and Barclays all anticipate one more hike before the Fed puts an end to the current tightening cycle. Barclays chief U.S. economist, Marc Giannoni, believes that there is a higher likelihood of two more hikes rather than a complete stop. Federal Reserve Chairman, Jerome Powell, has expressed caution regarding forecasts for rate cuts next year. The timing and future actions of the Federal Reserve remain uncertain.
Conclusion: How the Pause in Interest Rate Hikes Impacts New Businesses
A Positive Outlook for New Businesses
The expected pause in interest rate hikes by the Federal Reserve brings positive implications for new businesses. With Wall Street widely believing that the current interest rate cycle is over, it signals a stabilizing economic environment that could foster growth and investment opportunities. The Federal Reserve's decision to let data guide their decision-making rather than being tied to a specific rate-raising formula adds a level of flexibility, giving new businesses more room to plan and adapt to market conditions.
Favorable Economic Data Supports New Business Ventures
Recent economic reports showcasing better-than-expected GDP growth and lower-than-anticipated inflation provide further support for new businesses. A stronger GDP growth rate, coupled with a lower inflation pace, creates a conducive environment for entrepreneurs and startups to flourish. The likelihood of disinflation and a softening in growth and the labor market, as projected by economists, could also benefit new businesses by reducing operational costs and labor market competition.
The Need for Caution and Preparedness
While the majority of market experts believe the Federal Reserve will pause interest rate hikes, there are differing views and uncertainties about the future actions of the Fed. Some financial institutions anticipate one more hike before the tightening cycle ends. As a new business, it's crucial to remain cautious and well-prepared for various scenarios. Monitoring economic indicators and staying informed about the Federal Reserve's decisions will help new businesses adapt their strategies accordingly.
In conclusion, the anticipated pause in interest rate hikes by the Federal Reserve is generally favorable for new businesses. It provides stability, favorable economic conditions, and potential investment opportunities. However, it is essential to closely monitor the evolving economic landscape to ensure informed decision-making and preparedness for potential changes in monetary policy.
Article First Published at: https://www.cnbc.com/2023/07/27/wall-street-economists-say-rate-hikes-are-over-even-if-the-fed-wont-admit-it.html.svg)
