Experts are warning that interest rates in the US could remain around 5.5 percent for the next six months.
Rates have been raised multiple times by the Federal Reserve over the past year to mitigate the impact of inflation.
Despite inflation dropping from a high of 9.1 percent in June last year, many analysts believe interest rates could remain at their current level for around half a year so the effect of the hikes could be more tangible felt.
As of today, the central bank has raised the Federal Funds Rate to between 5.25 and 5.25 percent.
This means that homeowners and those struggling with debt repayments will continue to have to pay these hiked rates going into 2024.
Brian Wheaton, an assistant professor at UCLA Anderson School of Management, is of the opinion that interest rates could remain at around 5.5 percent for the foreseeable future.
He explained: “I would suspect that holding rates at the current level for about half a year is the best approach.
“Empirical research on monetary policy tends to show the existence of significant ‘policy lags,’ whereby it takes many months or even a year for the effects of the policy to filter through the system.
“We won’t thoroughly know the economic slowdown effects of the current 5.25-5.5 percent federal funds rate until we’ve stuck with it for several months, and the rate is now high enough (and inflation has begun to come down enough) that my view would be that a wait-and-see approach is preferable to continued rate hikes in the near term.”
With inflation easing over recent months, analysts have determined a “soft landing” is likely for the US economy.
This is the term used to describe the cyclical slowdown in economic growth that prevents a recession from taking place.
Unlike other G7 economies, the US has narrowly avoided this fate but the threat of rising interest rates has meant it has been a possibility.
However, despite August’s hike, inflation remaining close to the Federal Reserve’s desired target means a “soft landing” could be a reality.
Alex Lebedinsky, PhD, an interim associate dean and professor, at Western Kentucky University, outlined why this is the likely outcome.
Professor Lededinsky added: “I think the current lower rates of inflation seem to suggest that the scenario in which the Fed successfully engineers the ‘soft landing’ is very likely.
“If inflation is reduced without too much effect on employment, then the economy should be in good shape – everything else being constant.
“The economic turmoil of the past three years was the result of the pandemic, which led to disruptions in supply and massive reallocation of consumer spending from services to durable and non-durable goods, followed by Russia’s invasion of Ukraine, which affected the energy markets.”
