Was May 3rd the last rate hike this economic cycle? Based on what we know right now, odds favor a yes answer to that question.
The Federal Reserve’s highly aggressive interest rate-hiking campaign which started in March 2022 is definitely having an impact. However, the full impact of each rate hike is not really known until a full nine months later.
That means the economy we are experiencing today probably fully reflects up to 3.25% of rate hikes. There is an additional 2% of rate hikes that is gradually being phased in each day.
Historically, the Federal Reserve has a history of going too far. Whether it is cutting rates or raising rates, they can never get it perfect due to this extended lag between their policy changes (immediate), reality unfolding (about 9 months), and then economic reports that tell them what reality was (another month or two!)
Inflation has trended down, but is still well above their target. The unemployment rate has ticked up slightly, but the labor market is still too tight for the Federal Reserve’s comfort. If inflation stops declining or the unemployment rate stops rising, we could still see another interest rate increase from the Federal Reserve later this year.
They are well ware of the risks and tendencies of going too far, but they also will not stop until inflation is much closer to their 2% target than it is right now.