Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Fed hints at rate hikes by 2023

--  |  17 Jun 2021Text size  Decrease  Increase  |  
Email to Friend

The Federal Open Market Committee unsurprisingly held the federal-funds rate at 0.0%-0.25% in its latest statement released on June 16.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Nobody expected a change in rates this meeting; however, there was some anticipation regarding the potential for new commentary around the tapering of asset purchases and around updates to the dot plot and the Fed’s outlook on future rate hikes.

Updates to the dot plot were the biggest change, with the median federal-funds rate projection now being 60 basis points by 2023 versus 0 basis points from the last release back in March. In other words, the median Federal Open Market Committee (FOMC) participant now expects roughly two rate hikes by 2023 versus the expectation of 0 rate hikes from the FOMC’s previous release.

This is a material change in the outlook, and we expect to update the rate outlook in our banking models to incorporate rate hikes starting in 2023. This is a bit earlier than we previously expected. We expect this to increase the fair value estimate for our traditional US banking coverage by a low-single-digit percentage.

There were still no hints at tapering in the release, and we don’t expect any tapering until the economic recovery is well on its way, at least for a couple more months. This refers to reducing the quantity of bonds bought by the Fed as part of their quantitative easing programs. We expect that any actual tapering will be telegraphed well in advance. We’ll have a better feel for if the Fed is “talking about talking about tapering” once the minutes from the Fed’s meeting are released in early July.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend