Powell delivered on the promise he made in March to increase rates last month. At the most recent Fed meeting in May, they increased the short-term rates by 0.25%, just as the financial markets expected. No surprise.
"Economic activity expanded at a modest pace in the first quarter," he said at the press conference following the May meeting." Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient."
Yet despite Powell's confident tone, investors are cautious. In the accompanying charts, you can see that the Standard & Poor’s 500 index is essentially unchanged in the past 12 months. And yet, investors have pulled more cash to the sidelines in 2023.
It's our belief that interest rates are near, if not at, their highs and will remain so through the rest of 2023. As indicated by the recession dashboard above, if a recession were to occur it is looking like it won't be until 2024. Until we get there, we don't expect the Fed to decrease interest rates. As a result, we see interest rates on savings accounts and mortgages remaining relatively stable in the short term.