The Fed reached its 2023 5.125% target for the Fed Funds Rate in the first half of the year. Hindsight is twenty-twenty, but many economists and market participants agree the U.S. central bank waited far too long to raise rates as rising inflation in 2021 was anything but “transitory.” While the Fed acknowledged inflation was a structural economic problem, the world’s central banks and governments have not admitted their role in planting the inflationary seeds through unprecedented liquidity and stimulus programs that led to the inflationary spiral. The rate hikes since March 2022 to combat inflation were overdue. The central bank faces another dilemma: they must balance tight credit’s impact so they do not overdo it with hawkish monetary policy.
The next FOMC meeting is on June 13-14, and the central bank will need to walk a fine line when considering another increase in the Fed Funds Rate.
