Interest Rate Hikes Are More Likely, But the Pace Would Be Slower

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By Jacob Maslow

US Federal Reserve
The US Federal Reserve in Washington DC on a beautiful summer day

Depending on how you view the language of the recently released US Federal Reserve notes, either interest rate hikes will happen or they will happen but very slowly. Regardless, the US Federal Reserve has opened the door for interest rate hikes. That is never gone away. Even though they took off the language “patient”, it is very clear that interest rate hikes are still firmly on the table.

It is understandable why the monetary policy-setting body has decided to issue its policy this way. It needs an out. It needs some leeway depending on how the economic data stacks up. As it stands, while there are a lot of bright points in the US economy, there are also serious areas for concern. It appears that the economic data on the table is not unambiguous. For every positive indicator, there are also negative indicators. Faced with such a situation where the economic picture can turn one way or the other, it is not expected for the US Federal Reserve to issue a report that is worded the way it is.

With that said, one thing is clear. Interest rate hikes are still on the table, but the pace or the severity of such hikes seems to be slower. This makes a lot of sense because it is very easy for the US Federal Reserve to pull the trigger and hike rates abruptly. This can kill the stock market and actually bring on an economic slowdown when the trigger is actually a temporary hiccup.

You only have to look at the past few quarters of economic indicators to see what I’m talking about. The typical pattern is that there are positive periods and then, all of a sudden, there is a negative hiccup. What would happen if the US Federal Reserve jumped the gun and overcompensated for a temporary hiccup? It can cause a global economic havoc. This is the mine field that the US Federal Reserve is trying to avoid.

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