The Fed is not taking future interest rate hikes off the table

To bring down stubborn inflation, the Federal Reserve has raised interest rates 10 times since March 2022. And despite a recent inflation slowdown and less turmoil in the banking sector, one Fed official said rate hikes may persist after the central bank’s next meeting set for mid-June. 

"I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective," Fed Governor Christopher J. Waller said in May at an economic summit in Santa Barbara, California.

Most recently in May, the Fed increased the federal funds rate by 25 basis points. In April, inflation increased 4.9% year-over-year, a decrease from its 5% increase in March, according to the latest consumer price index (CPI) report.  

"But that decline was only due to rounding—the actual decrease was just five one-hundredths of a percentage point, from 4.98 percent to 4.93 percent. Almost no progress," Waller said. 

In addition, Core CPI – which excludes food and energy prices and is the Fed’s preferred measure of inflation –  increased 5.5% year-over-year in April. 

"Whether measured on a three month, six-month or 12-month basis, it is running too high," Waller said. 

To make its decision on potential rate increases, Waller said the central bank would be analyzing future inflation data, jobs reports, Gross Domestic Product (GDP) readings and the state of credit conditions amid recent pressure in the banking sector. 

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Americans are feeling the pressure of high interest rates and inflation 

In the past year, the Fed has been increasing the target range for the federal funds rate to reduce the demand for goods, services and labor, Waller said. 

But that range is now at 5.00% to 5.25%, its highest in more than a decade.

And citizens have been feeling the pressure of higher interest rates, according to various reports. 

In fact, interest rate hikes and inflation have impacted the financial well-being of Americans across all income levels, according to a recent survey by Morning Consult.

Charlotte Principato, Morning Consult’s lead financial services analyst, said even high-income households "have started to feel the pain" of high inflation. 

"We tend to see lower- and middle-income households impacted more quickly by inflation, since they have less financial cushion, while higher-income households may not exhibit any changes at all in their financial well-being during periods of inflation," Principato said. 

And to cope with high inflation, many Americans have made extreme choices, according to a recent survey by Real Estate Witch. Notably, 27% of respondents said they’ve skipped meals and 22% said they missed medical appointments and treatments.

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Americans concerned about a recession

As the Fed contemplates raising interest rates again, Americans have been fearing recession.

In fact, 53% of Americans said the economy is in a recession, according to a survey by Clever. And The Conference Board, a think tank, recently updated its Expectations Index based on consumers’ short-term outlook for income, business, and labor market conditions. That index has remained below 80 – the level associated with a recession within the next year – since February 2022, except for a slight uptick in December 2022, The Conference Board said.

"Consumer confidence declined in May as consumers’ view of current conditions became somewhat less upbeat while their expectations remained gloomy," said Ataman Ozyildirim, senior director of economics at The Conference Board. 

In addition, some experts have warned that economic conditions may push the nation into a recession soon.

"Federal rate hikes are finally bringing down inflation, but economic indicators – manufacturing, housing, jobs, banking – are flashing signs of an economic recession," Angeles Investments CIO Michael Rosen, said. 

Moreover, financial institutions such as Bank of America and First National Bank of Omaha (FNBO) have warned of a recession in 2023. 

"Economic downturn is likely in the U.S. as most economic indicators currently point to a deceleration at the minimum and/or probable contraction," FNBO said in a report. "Aggressive Fed monetary tightening and higher interest rates may negatively impact economic growth."

Still, the Fed said it’s mindful of how further interest rate hikes may impact the economy. 

"If not considered appropriately, the Fed could tighten too much and needlessly raise the risk of a recession," Waller said.

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