On Wednesday, Jerome Powell & Co. are widely expected to jack up the federal funds rate by another 25 basis points, pushing it to a 5.25–5.5% range. That’s the highest it’s been since 2001. The move follows a short-lived pause in June, which apparently wasn’t a pivot — just a coffee break.
Let’s back up. After a relentless year of ten straight hikes, the Fed hit the brakes last month to assess the damage. Between bank failures, tighter lending, and all-around recession paranoia, it made sense to take a breath. But that breather didn’t last long.
Inflation cooled a bit. Growth didn’t fall off a cliff. Unemployment stayed low. Translation? The economy didn’t crack — yet. So now the Fed feels confident enough to get back on the hiking trail. The July meeting looks like a lock for a rate boost, with CME FedWatch showing market odds of a hike at a whopping 99%.
Joseph Gagnon from the Peterson Institute says he’s all in on a hike. Bank of America’s Michael Gapen agrees, saying this so-called “cooling” of the economy is moving slower than a Monday morning. Bottom line: demand still outweighs supply, and the Fed isn’t done trying to slam the brakes.
The big question isn’t whether they’ll hike — it’s what happens after. September’s meeting is already on the radar, and opinions are split. Some think we’re getting another bump. Others say the Fed might finally hold steady and see what all these rate moves have really done.
Goldman Sachs is feeling a little less gloomy these days, cutting its recession odds from 25% to 20%. Not a huge drop, but still — optimism is rare in this game. Deutsche Bank chimed in, saying the line between a soft landing and a shallow recession is getting harder to see. Either way, no one’s popping champagne yet.
What could shake things up? Powell’s press conference after the decision. Markets will be watching every word like it’s a Super Bowl ad. If he signals that another hike is coming in September, expect some fireworks. If he plays it cool, Wall Street might exhale — at least for a few weeks.
One thing’s clear: the Fed’s in uncharted territory. And whether this ends in a graceful landing or a messy crash, they’re still the ones flying the plane.