The 25bps hike by the US FOMC was on expected lines and a non-event for the markets. This recent hike marks the 11th
consecutive increase in the Fed Funds rate since the beginning of CY’22, bringing it to a range of 5.25-5.5%. Despite these
consecutive rate hikes, the U.S. economy has shown resilience, with moderate impacts observed so far. Inflation remains
high, job gains are robust, and unemployment remains low.
The FOMC has stated its commitment to bring inflation down to its 2% target and will continue to make decisions based on
data. The uncertainty about the next move is evident from Fed Chair Powell’s non-categorical stance on the September
2023 meeting. As of now, the market sentiment, as indicated by CME’s FedWatch tool, suggests an 80% probability for
rates to remain steady in the September meeting.
According to Moody’s Analytics, a majority of outstanding household US debt still carries fixed rates, meaning that many
households have not yet experienced the full impact of the rate hikes. The popularity of fixed-rate loan products among
households and lenders during the low-interest-rate environment of the last decade has contributed to this situation. As a
result, financial conditions still seem comfortable for many households.