If you haven’t been living under a rock for the past 12 to 14 months, you know that the US Federal Reserve has embarked on a thunderous campaign of rate hikes. The main purpose of those rate hikes is to bring inflation under control. However, the central bank is trying so fanatically that interest rates are at their highest level since 2007 and we are dealing with the most aggressive interest rate campaign in recent history.
This beautiful image from Visual Capitalist shows just how fierce and aggressive the current US Federal Reserve campaign is.
Faster than ever
Basically, the chart above already tells you almost everything you need to know about this Federal Reserve interest rate campaign. The only reason we haven’t seen a recession in recent weeks or months is probably because the Federal Reserve raised interest rates so quickly. In a span of 14 months, the Effective Federal Fund Rate (EFFR) increased by 4.88 percent.
Chances are we won’t feel the real pain of those rate hikes until time passes. Although, with the start of the banking crisis in March 2023, we were of course able to catch the first glimpses of this.
Incidentally, the EFFR is the interest at which banks lend money to each other. The Federal Reserve determines the Federal Funds target rate and ultimately, within that Target Rate (currently 5.00 – 5.25 percent), the banks must have a effective rate determine.
The table above also shows how aggressively this Federal Reserve campaign, which is not yet over, has been raging so far.
The end in sight?
The big question, of course, is when the Federal Reserve will finally be done raising interest rates. It is not a pleasant development for the market that the US central bank keeps raising interest rates. We saw in 2022 what all that did to Bitcoin and of course we were not happy about that.
At the time of writing, the market believes there is a reasonable chance (63.8 percent) that the Federal Reserve is done with its campaign. This means that on June 14 – during the next interest rate meeting – they opt for an interest rate pause.
However, a small 36.2 percent still stands for a new interest rate increase of 0.25 percent. That would mean that the market will take one last small blow. Personally, I don’t expect the Federal Reserve to do that.
But the US labor market seems to still have room for an additional hike at this point. Although we should also not forget that the pace of interest rate hikes (5 percent in 14 months) can also give us the wrong idea that the impact is not too bad.