Why These Economists Say The End Of The Fed's Interest Rate Hike Cycle Is Near

Zinger Key Points
  • Further hikes should not come above the 0.25% mark and pause this year.
  • History shows that stocks typically rise after the end of a rate hiking cycle.

The Fed confirmed its latest hike on the federal funds rate of 0.25% on Wednesday afternoon.

The decision to slow down the pace of hikes was seen as a sign the economy was responding positively to last year's hard tightening measures.

The current federal funds rate is currently at between 4.5% and 4.75%.

Charlie Ripley, senior investment strategist for Allianz Investment Management said the Fed anticipated further rate hikes may be needed, yet Fed Chair Jerome Powell didn't offer much pushback towards the market's narrative that the end of the hike cycle is near.

Ripley believed the Fed was nearing the end of the cycle, as further increases were signaled while also acknowledging that those took into consideration the amount of tightening accumulated so far.

"This tells us that the Fed is near the end of the tightening cycle, and they are getting ready to sit tight while the economic data catches up to the policy," he said.

Bill Adams, chief economist at Comerica Bank agreed Powell's statement lends itself to the interpretation that the end of the hike cycle was near, but wonders if the markets would believe this and act accordingly.

"The issue here is now credibility, " Adams said.

"With the labor market softening and expected to soften more, and inflation cooling and expected to cool further, how likely is the Fed to keep hiking after March and increase the odds of overtightening and triggering a downturn that is more severe than is necessary to bring inflation back to two percent?"

Jeffrey Roach, chief economist for LPL Financial, said the committee "is comfortable accepting that inflation has eased." He didn't believe the pause in hikes would come until later in 2023, but in any case, further hikes shouldn't be above 0.25%.

"Inflation is poised to ease further in the coming months, which will give the Fed some leeway to end its rate hiking campaign."

Further, he said history showed us that stocks typically rose after the end of a rate hike cycle.

Joseph Brusuelas, chief economist at consulting firm RSM, agreed a pause is near, but warned that "the lagged impact of the 475 basis points of rate hikes over the past year will cause a mild contraction in overall economic activity later this year."

He was expecting further 0.25% hikes in March and April and after that, a pause on hikes until 2024, unless prices in the gas and energy sectors fail to respond positively.

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Posted In: NewsFederal ReserveAllianz Investment ManagemengBill AdamsCharlie RipleyComerica BankFOMCInflationJeffery RoachJerome PowellLPL Financial