Federal Reserve officials held interest rates steady at their monthly policy meeting on Sept. 20, 2023—only the second time they have done so since embarking on a rate-raising campaign a year and a half ago. But it is what they hinted at rather than what they did that caught many economists’ attention: Fed officials indicated that they don’t expect rates to end 2023 higher than they predicted in June—when they last issued their projections.
Since the hiking cycle began, observers have worried about whether increased rates could push the U.S. economy into a downturn. Some have even speculated that a recession had already begun. However, the economy has been more resilient than many expected, and now many economists are wondering whether the seemingly impossible soft landing—that is, a slowdown that avoids crashing the economy—has become a reality.
As a finance professor, I think it’s premature to start celebrating. Inflation is still almost double the Federal Reserve’s target of 2%, and it is expected to come in at around 4% for September. What’s more, the economy is still growing quite fast, with consensus forecasts showing gross domestic product will rise by nearly 3% this quarter. Some early data suggests that could be a low estimate.
What’s Next For Interest Rates?
Fed watchers are parsing every word from the central bank to determine whether another hike is coming this year or next, or if the cycle is truly over. To understand that decision, it helps to consider the bigger picture.
The Federal Reserve started raising rates aggressively in 2022, coinciding with a post-pandemic spike in inflation.
While the U.S. economy has certainly avoided a downturn for longer than many expected, the inflation battle is a long way from finished. In fact, this wouldn’t be the first time the economy looked like it would avoid a soft landing. For the next several months, the economy is not likely to implode without a major spark.
However, inflation may not continue to fall as quickly in the coming year, which means the Fed may still raise rates more than some expect. If rising oil prices