President Trump can see the recent markets swoon as the Fed has hiked rates four times in 2017 and now seems on track to raise rates at least once more in the fourth quarter, particularly after the increase at the end of last month was not accompanied by other reforms of the economy. Market watchers say the Fed has signaled that another rate hike is “imminent.”
“I think it’s going to get easier to raise rates and to justify each hike,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., told Bloomberg News.
Wall Street’s long-awaited expectations for the Fed to continue raising rates, eventually coming to an end, could lead to a downturn if those expectations are realized. But, even if interest rates are rising, there is still an impetus for the Fed to keep the overall economy out of trouble.
This week, the Fed released its semi-annual Economic Report to Congress — a detailed study of key economic trends that the panel recommends to Congress to consider when it decides how to respond to those trends.
The report laid out few concrete policy recommendations, but noted that the economy continued to exhibit strength, citing a strong labor market and declining unemployment. The economy also remains “on track” with the goals of full employment, but the threat of inflation remains. The report also noted that wage growth remains weak, but “suggests further progress, and that overall wage growth may be close to potential.”
Fidelity Investments noted that the Fed report’s acknowledgement of growing risks and their affirmation of the need to prepare for such risks could signal an “increased hawkish tilt” in the Fed’s outlook and could push market interest rates higher.
So, the bottom line? Stocks will likely stay volatile. And ultimately, the direction of interest rates could have a major impact on everything from consumer spending to inflation.
We’ll be following interest rates closely. Stay tuned.