Rates of interest might ‘be held’ at 5.5 % for an additional six months

Experts are warning that interest rates within the US might stay round 5.5 % for the subsequent six months.

Rates have been raised a number of instances by the Federal Reserve over the previous yr to mitigate the impression of inflation.

Despite inflation dropping from a excessive of 9.1 % in June final yr, many analysts imagine rates of interest might stay at their present degree for round half a yr so the impact of the hikes might be extra tangible felt.

As of at present, the central financial institution has raised the Federal Funds Rate to between 5.25 and 5.25 %.

This signifies that homeowners and those struggling with debt repayments will proceed to must pay these hiked charges going into 2024.

Brian Wheaton, an assistant professor at UCLA Anderson School of Management, is of the opinion that interest rates might stay at round 5.5 % for the foreseeable future.

He defined: “I would suspect that holding rates at the current level for about half a year is the best approach.

“Empirical research on monetary policy tends to show the existence of significant ‘policy lags,’ whereby it takes many months or even a year for the effects of the policy to filter through the system.

“We won’t thoroughly know the economic slowdown effects of the current 5.25-5.5 percent federal funds rate until we’ve stuck with it for several months, and the rate is now high enough (and inflation has begun to come down enough) that my view would be that a wait-and-see approach is preferable to continued rate hikes in the near term.”

With inflation easing over latest months, analysts have decided a “soft landing” is probably going for the US financial system.

This is the time period used to explain the cyclical slowdown in financial development that stops a recession from happening.

Unlike other G7 economies, the US has narrowly prevented this destiny however the specter of rising rates of interest has meant it has been a chance.

However, regardless of August’s hike, inflation remaining near the Federal Reserve’s desired goal means a “soft landing” might be a actuality.

Alex Lebedinsky, PhD, an interim affiliate dean and professor, at Western Kentucky University, outlined why that is the doubtless consequence.

Professor Lededinsky added: “I think the current lower rates of inflation seem to suggest that the scenario in which the Fed successfully engineers the ‘soft landing’ is very likely.

“If inflation is reduced without too much effect on employment, then the economy should be in good shape – everything else being constant.

“The economic turmoil of the past three years was the result of the pandemic, which led to disruptions in supply and massive reallocation of consumer spending from services to durable and non-durable goods, followed by Russia’s invasion of Ukraine, which affected the energy markets.”