By Sabrina Karl

Last week, the Federal Reserve hiked interest rates another quarter percentage point. Added to eight previous increases, the Fed has raised rates 4.75% over the last twelve months in a bid to tame the highest inflation the U.S. has seen in decades.

Inflation is still a problem, but it has shown signs of slowing. And because Fed moves take time to make their impact, it’s been expected that the current rate hike campaign was coming to an end.

That’s still the expectation, but recent bank failures have complicated predictions. Before Silicon Valley Bank’s failure three weeks ago, market watchers predicted the Fed would raise rates by half a point. The financial sector turmoil, however, caused them to issue a quarter-point hike instead.

The question now is two-fold: how much further will the Fed take rates in 2023, and when might they begin to reduce?

Currently, CME Fedwatch shows a 50-50 chance between another quarter-point increase on May 3 and no increase at all. After that, some futures traders start predicting a Fed decrease in July, while a slight majority forecast a September reduction.

But not everyone agrees. Indeed, investment giant Blackrock publicly warned last week that bets on any 2023 Fed rate reductions are extremely premature.

At present, it seems likely the Fed rate peak for the year will be a quarter point higher than today. Raising by a half point before plateauing is not inconceivable, but is looking less probable.

As for rate reductions, they’re simply a big guess right now. As this last news cycle of bank failures clearly spotlighted, every Federal Reserve rate decision is made based on the freshest economic data and news. And what we know right now is not what we’ll know before each of the six remaining Fed meetings this year.