"What to Anticipate from the Federal Reserve Meeting on Wednesday"

Federal Reserve Expected to Approve 11th Interest Rate Increase

Investors Hope for the Last Hike

Despite an improving inflation picture, the Federal Reserve is expected on Wednesday to approve what would be the 11th interest rate increase since March 2022. Investors are hoping it will be the last one for a long time. Markets are pricing in an absolute certainty that the Fed will approve a quarter percentage point hike that will take its benchmark borrowing rate to a target range of 5.25%-5.5%. That would push the upper boundary of the federal funds rate to its highest level since January 2001.

The Fight Against Pernicious Inflation

The more pressing matter will be whether Federal Open Market Committee officials feel they've gone far enough or if there's still more work to do in the fight against pernicious inflation. "The signal will probably be, yes, we're hiking, but then we think we can sit here for a while and see," said Kathy Jones, chief fixed income strategist at Charles Schwab. "But no promises. They can't give up the option."

Indeed, the Fed's course is far less certain. Central bank policymakers almost unanimously believe inflation is too high, but hiking more from here carries risks to an economy that many think is heading for at least a mild recession. Jones is part of a growing market chorus that thinks the central bank has gone far enough. With the annual inflation rate declining to 3% in June — it was 9.1% a year ago — the danger is growing that the Fed could unnecessarily push the economy into contraction.

Market Reaction and the Future

Markets, though, haven't seemed to mind. Wall Street has been on a tear all year, with the Dow Jones Industrial Average jumping more than 5% over the past month alone. That could be because traders are ignoring the Fed's rhetoric and pricing in just a 35% probability of another hike before the end of the year. One key from the meeting will be whether Fed Chairman Jerome Powell indicates that, at the least, the FOMC will again skip a hike at its next meeting in September while it analyzes the impact the previous increases have had on the economy.

Fed policy, though, has been informed by a belief that when it comes to fighting inflation, it's better to do too much than too little. The current bout of price increases was the most severe the U.S., and many other developed nations, has had to face since the early 1980s. That last period also is behind a lot of the Fed's thinking, with a particular focus on how policymakers then backed off the inflation fight too soon and ended up having an even worse problem.

Recent indicators are showing that credit conditions are tightening significantly, with higher interest rates and tougher lending standards a substantial headwind to future growth. "Recently softer core inflation will be welcomed by Powell, but he is likely to want several more months of softer inflation data before confidently terminating the hiking cycle," Citigroup economist Andrew Hollenhorst said in a client note.

Likewise, Steven Blitz, chief U.S. economist at Globaldata.TSLombard, said a "dovish hike and talk of soft landings" at Wednesday's meeting would be a mistake for the Fed. "Planes land, economies do not. Economies are an ongoing dynamic process, and no recession will prove more problematic for the Fed than not," Blitz wrote. "The economy is heading into recession, but if it is somehow avoided, then the disinflation of this moment will prove fleeting, so too the Fed's confidence that they are at the end of this hiking cycle."

Federal Reserve Expected to Approve 11th Interest Rate Increase - Potential Impact on New Businesses

The anticipated 11th interest rate increase by the Federal Reserve has garnered significant attention from investors and market participants. While investors hope that this will be the last hike for a considerable period, the lingering question is whether the Federal Reserve has done enough in their fight against pernicious inflation. This decision bears implications for new businesses looking to navigate the financial landscape.

With inflation improving but still a concern, the Federal Open Market Committee finds itself at a crossroads. The Fed's course is uncertain, and the risks associated with further hikes could potentially impact an economy that some believe is heading towards a mild recession. This uncertain environment poses challenges for new businesses that rely on favorable economic conditions to thrive.

The reaction of the market thus far has been seemingly positive, as financial markets have experienced continuous growth. Traders have largely disregarded the Fed's rhetoric and assigned a relatively low probability of another hike before year-end. However, it remains to be seen how the market will respond in the months ahead, especially considering credit conditions are tightening and lending standards are becoming more stringent. These factors may present significant headwinds to the growth of new businesses.

For entrepreneurs starting new ventures, the Federal Reserve's strategy of actively combating inflation by erring on the side of doing too much rather than too little has important implications. While the current inflationary pressures are some of the most severe in decades, there is a delicate balance to strike. If the Fed overdoes its tightening measures, there is a risk of destabilizing the economy and potentially pushing it into a contraction, which could have adverse effects on new businesses.

As new business owners, it is essential to stay informed about the Federal Reserve's decisions and their potential ramifications. Keeping a close eye on market reactions and economic indicators can help entrepreneurs navigate the challenges and uncertainties created by interest rate hikes. Consider consulting with financial advisors or experts to adapt business strategies accordingly and ensure their sustainability in a changing economic landscape.