Are high interest rates here to stay? The Fed is leaning in that direction

The latest interest rate hike by the Federal Reserve should’ve come as no surprise to anyone. The Fed’s made its intentions clear since it began ratcheting up the federal funds target rate in March 2022. And the media leaks in the days leading up to Fed meetings have proven right almost every time (give or take a wrong guess on 25 basis points here and there).

One thing’s remained the same – Fed chairman Jerome Powell is determined to keep rates high until inflation drops to a more manageable 2%. What is changing is Powell and board members’ timeline for when that may happen.

For example, as recently as 2022, Powell talked about only needing to raise rates a few times before prices cooled off. That’s certainly changed.

Powell just recently admitted it may take until 2025 to bring inflation near 2%. And that’s nothing more than a hopeful guess even from a bright guy like Powell.

Brace for the ‘new normal’

Everyone you talk to who’s in the market for a home, eyeing a big-ticket item or contemplating a loan is optimistic rates can only come down. “They’ve got to cut rates at some point! Early next year. Right?”

Maybe – or maybe that’s wishful thinking. Keep in mind the topic of cutting rates isn’t on the lips of Fed rate-setters whether they’re going on the record with a reporter or speaking anonymously.

Fed members were in near unison that the rate would need to go as high as 5%. The Fed’s delivered on its promise after just raising the rate range by 25 bps to 5.25%-5.50%. Seems hard to believe we were still at near-zero rates as recently as January 2022.

Years and years of low to near-zero interest rates lulled businesses into believing capital would always be easy to get. Those times may not be coming back at least as long as Powell is in charge and inflation hovers at 5%.

Bottom line: Adjusting expectations for the next two years at a bare minimum may be necessary for some businesses.

Here’s a historical look back at the Fed’s rate hikes: