Economics and markets

Why the Fed will not cut rates this year

June 07, 2023

Two charts on top of each other. The top chart has a line showing the actual federal funds rate from mid-2021 through May 2023, then a projected Fed funds rate thereafter. The line starts near zero in 2021, then rapidly starts rising in early 2022 before hitting 5.25% in May 2023. The projected line rises to around 5.63% by July 2023 before it starts to gradually fall around June 2024. A second chart with three lines shows the probabilities, respectively, of a rate increase, a rate hold, and a rate decrease from mid-2021 through the end of 2024. The probability line for an increase starts around 27% in 2021 before mildly dipping in 2022, then rises to 38% by May 2023 before gradually falling thereafter. The probability line for a rate hold starts around 53% and falls steeply to 34% by May 2023. It starts a gradual rise through November 2023 before falling again. The probability line for a rate decrease starts at 20%, then rises to 34% by August 2022, then slowly falls to 29% by May 2023, and keeps falling to 25% by November 2023. It then starts sharply rising, eventually going higher than the other two probability lines by June 2024. A vertical line overlaying both charts shows that this is roughly in sync with when Vanguard expects rate cuts.


Asawari Sathe
Vanguard Information and Insights

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