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CIBC Private Wealth

May 04, 2023

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Fed raises rates as it stays focused on growth and inflation

 

As widely expected, the US Federal Reserve (Fed) raised the target range for the federal funds rate by 25 basis points (bps)—bringing it to 5%-5.25%.

The Fed neither confirmed nor denied if there are plans for additional rate hikes this year and confirmed it will monitor incoming information to decide whether more increases are needed. CIBC Capital Markets feel this may suggest further rate hikes could be on hold for a while, but only time (and data) will tell. The Fed hopes to achieve a maximum inflation rate of 2% over the longer run. If the data starts to lean towards stronger-than-expected growth and inflation, additional rate increases may be required.

CIBC Capital Markets also confirms yesterday’s interest rate increase reflects new uncertainties over the US banking system, which the Fed describes as "sound". However, at the same time acknowledges that tighter credit conditions (including higher interest rates) could weigh on both growth and inflation to an uncertain degree.

Aaron Young, Vice-President, Global Fixed Income at CIBC Asset Management says the Fed continues to face the difficult task of fighting inflation while trying to avoid further breaks to the banking system and a deep recession. "Given this difficult balancing act, interest rate volatility should persist, offering opportunities to take advantage of changes in the shape of the yield curve to add value for our investment strategies."

As the economy needs time for inflation pressures to halt, CIBC Capital Markets expects to see little or no growth in Q2, inflation signals to continue to moderate and the first ease on interest rates to likely only come in 2024.

 

At CIBC Private Wealth, we take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail or have questions about your investments, please get in touch with me any time.

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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