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When will the Federal Reserve stop raising interest rates?

You have probably noticed that the bitcoin price in 2022 (and also in 2023) has been significantly influenced by the aggressive interest rate hikes of the US Federal Reserve. They were necessary to bring down the sky-high inflation. With that finally starting to take hold (CPI at 3.0 percent and core inflation at 4.8 percent), we can start thinking about the potential end of the rate hike cycle.

One last raise

If we believe the market then we get one last rate hike from the Federal Reserve on July 26, 2023. The probability of a rate hike at next week’s meeting, according to the market, is about 96 percent right now. Despite the fact that interest rates have already fallen considerably, the Federal Reserve does not yet want to think about extending the interest rate pause.

After next week’s interest rate meeting, the next one is scheduled for September 20. If the Federal Reserve raises interest rates by 0.25 percent next week, we will end up at 5.25 – 5.50 percent. As you can see in the image above, the market expects interest rates to remain at the same level on September 20.

That would mean that we will not see another interest rate hike and therefore that there is a good chance that the Federal Reserve’s interest rate campaign will definitely come to an end. Hardly anyone expected interest rates to rise all the way to 5.25 – 5.50 percent without triggering a recession.

What now?

Now we have to wait for the Federal Reserve to start cutting interest rates. To do this, core inflation must first return to 2.0 percent OR a recession must break out after all. The market seems to believe less and less in the latter, which is also reflected in the prices of risk assets that continue to rise.

It is precisely at those moments that the sentiment can become a little TOO positive, so it is advisable to pay close attention. If the recession breaks out now, it will come almost unexpectedly for some investors.

The euphoria is now starting to take hold, especially in the market for more traditional assets. Given that interest rates have been around zero for the past ~10 years, it would be strange if the economy can now survive at 5.50 percent. It seems almost inevitable that we will see another slippage in the economy.

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