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1 May 2023

International Economy

FOMC meeting, May 2-3, 2023: Fed Funds rate likely raised to 5.25% (Business Brief No.4001 Full Ed.)


        It is expected that the US Federal Reserve (Fed) will raise it policy rate by another 0.25 percent to 5.00-5.25 percent at the Federal Open Market Committee (FOMC) meeting scheduled for May 2-3, 2023. This may be its final rate hike of the current upward interest rate cycle amid credit tightening as a result of problems in the banking sector and recent policy rate increases, which are expected to cause the US economy to slow down and tip into a recession at any point in subsequent quarters. Although inflation in the US has gradually declined, it remains at an elevated level. The robust labor market will continue to support the Fed to raise its policy rate at the FOMC meeting, May 2-3, 2023 even as the US economy has exhibited signs of a slowdown after the 1Q23 GDP grew 1.1 percent, annualized QoQ, which was lower the 2.0 percent growth, annualized QoQ, expected by markets.
        Meanwhile, KResearch is of the view that the anticipated policy rate hike at the upcoming FOMC meeting may be the last of the current upward interest rate cycle, bringing the Fed funds rate to its peak of 5.00-5.25 percent in line with the Fed dot plot released at the previous meeting. Although inflation in the US has significantly declined, it remains relatively high. This coupled with the softening US economy due to the impacts of the Fed’s aggressive rate hikes in recent years, and credit tightening has led us to expect that the Fed will give more weight to the economic risk and end the rate increase after the upcoming FOMC meeting. The US central bank may maintain its view that the policy rate in the range of 5.00-5.25 percent should be adequate to bring inflation to its target of 2.0 percent and avoid a hard landing, while not causing any significantly adverse impact on the economy. Nevertheless, the Fed’s future monetary policy will likely hinge on inflation and economic figures. As the US economy is set to soften, it is likely that the Fed will cut its policy rates during 2023.

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International Economy