Key takeaways
- Federal Reserve Chair Jerome Powell has made it clear that the central bank will continue to raise interest rates until inflation is tamed.
- Economists are predicting another 0.75% rate hike later this month, see Economic Calendar below for timing.
- High interest and volatility doesn’t mean that your investments are doomed, there are markets like consumer staples that can help hedge against losses.
We’ve all seen the headlines: Interest rates are going up as the battle against inflation continues. It’s now evident that interest rates will most likely continue in this direction for the foreseeable future, at least until inflation is under control. So, all eyes are on The Fed as experts speculate when the next rate increase will be announced.
Rising interest rates can affect us just as much as inflation. When interest rates go up, the cost of borrowing money also increases. That means we’ll all spend more on any variable-rate loans, and we’ll be less likely to borrow new money (read: take on new, expensive debt). These rate hikes also impact the overall economy as money becomes more expensive to access. This is why tracking announcements from The Fed about interest rates is important.
Let’s consider the possible effects of the next interest rate bump, and when The Fed could make it happen, based on what we know so far.
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Federal Reserve
The Federal Reserve, or “The Fed,” currently controls the supply of money that’s in circulation in our economy. One of the main objectives of The Fed is to control inflation. The Federal Open Markets Committee (FOMC) sets the federal funds rate at its meetings to influence the economy, and they’ll raise rates when it’s time to slow down economic activity in order to fight inflation.
When you hear announcements in the media from The Fed, they’re likely coming from Federal Reserve Chair Jerome Powell or someone else on the committee. Powell had his last publicly scheduled appearance on September 8th, before the central bank’s upcoming meeting September 20-21. This appearance made clear that the central bank’s current focus is to reduce inflation, though we don’t know for certain what will come out of the meeting, as Powell and team have to assess the most current data before making a decision.
So when exactly does The Fed meet?
Economic calendar: Federal Reserve meeting schedule
The good news is that there’s a rough schedule for the federal reserve meeting so that we can hopefully anticipate a possible interest rate hike and plan accordingly. Economists often pay attention to announcements and interviews involving members of the FOMC in the weeks leading up to their meetings, in hopes of predicting what will happen. Sometimes the rate hikes are predictable, while other times there’s no consensus on what kind of announcement will come out of the meeting.
This is the Federal Reserve’s meeting schedule for the rest of 2022:
- September 20-21.
- November 1-2.
- December 13-14.
Many economists, including those at the Bank of America, believe that a third consecutive 0.75% rate hike is coming this month as the FOMC looks to slow inflation. The Fed will consider all relevant data when meeting later this month.
What will the Fed consider?
It’s important to know what The Fed considers when they meet to discuss interest rates and strategy. As a reminder, The Fed originally didn’t respond with any new policies when inflation started creeping up in the spring of 2021, as they attributed the price increase to pandemic-related factors. Since they felt inflation was “transitory,” they didn’t respond with any rate hikes until March 2022. Some experts were worried that this delayed response might have consequences.
The Fed will look at the consumer price index (CPI), labor reports, producer price index, consumer sentiment index, retail sales data and other data reporting this week on the economic calendar to assess the impact of the last rate hike in July and make a final decision for September’s expected rate hike. Consumer spending and labor reports are critical considerations because the central bank doesn’t want to bring the economy into a recession by increasing unemployment while inflation soars.
Their goal is to reduce the impact of rate hikes on labor reports. With many people working and making money, it’s unlikely that another rate increase would bring us into a recession. The Fed will therefore be more confident about increasing rates since the labor market is strong, showing robust hiring data.
The job market added 315,000 new jobs in August. This number is nothing to scoff at because it shows that companies are still hiring, meaning that they’re still making money despite the fact that the price of everything is increasing. People with jobs continue to spend money faster than people who are unemployed.
Consumer spending has also remained strong, with economists expecting a 0.2% increase in the CPI at the September announcement.
Understanding the federal funds target rate
The federal funds rate is the interest rate at which banks and other institutions lend money to one another. The federal funds rate is a tool to control the supply of funds and, by extension, reduce inflation. When the rate is raised, it’s more expensive to borrow money for everyone, lowering the supply of money and increasing short-term interest rates.
The Fed has already increased benchmark interest rates four times this year. The Fed sets a target range for the federal funds rate with an upper and lower limit. The federal funds target rate is now set at a range between 2.25%-2.50%. This range was set at The Fed’s July meeting when the rate increased by 0.75%.
An increase in the federal fund rate makes it more expensive to borrow money, leading to a decline in the economy. Since the FFR is the average rate banks pay when they borrow money from each other overnight, it impacts the rates of everything, especially the prime rate that banks charge their best customers. The Fed wants to keep the FFR within the specified target range to control economic swings.
Businesses that benefit from higher interest rates
Are higher interest rates bad news for everyone? Not necessarily. Many businesses suffer from higher interest rates because the cost of borrowing money and doing business goes up. Other businesses make more money from higher interest rates since their business models are tied to those figures.
It’s no secret that any financial sector business will benefit from interest rate hikes. Banks make more money from higher interest rates because they can pay out more to customers, which will attract new customers and more activity in savings accounts. Credit card and financial services companies will also bring in more revenue by charging higher rates.
Insurance companies will benefit from a rate hike because they invest a portion of premiums in the bond market, which is higher when the rates go up.
Consumer staples also do well when interest rates rise because folks become more concerned about saving money and this sector is considered recession proof. Consumers spend less on big-ticket items when prices go up because they’re more budget conscious. However, they can’t avoid spending money on food and other necessities.
If you’re concerned about how to invest your money during times of high inflation, you may want to take a close look at Q.ai’s Inflation Kit and protect your investments. Just because inflation is soaring doesn’t mean that your investments have to suffer. Better still, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what aspects of the market you invest in.
The bottom line
While we can all try to predict what The Fed will announce regarding interest rates, we truly don’t know what will happen until the announcement is official. The reality of our current situation is that interest rates will likely continue to increase. This means that you may want to think twice about making any major purchases as they’re going to cost you more.
The Fed has emphasized that the central bank will continue with rate hikes until inflation is under control. The timeline for this goal is unknown as we have to wait to see how the economy responds to every additional rate hike. We do know when the next FOMC meetings will take place so we can be ready for any possible rate hikes.
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