The Fed Will Still Raise Rates in March, And That’s Why Rates May Keep Falling

It’s been a tumultuous time for interest rates and the financial markets. But despite a recent drop in rates, there’s reason to believe that the Fed will still raise rates at its meeting in March. And that could cause rates to keep falling in the longer term.

Rate Movements Aren’t Always Clear Cut

The relationship between the Fed’s decisions and interest rates can be murky. Sometimes, market forces drive rate movements, while other times, the Fed’s action or inaction affects rates. The reality is that it’s often a combination of both.

But regardless of what’s driving rate movements at any given time, it’s clear that the Fed has been quite active in recent years—for example, through stained rate-friendly policies throughout much of 2020 and into early 2022. But in response to shifts in economic data and signs that stability was being threatened, they hiked the Fed Funds Rate and bought fewer bonds on the open market, leading to a sharp rate spike.

As they scale back some unfriendly policies, they’ll watch for the effects on the economy and future inflation rates. And that could have a role in pushing rates down further.

The Recent Banking Drama and Flight to Safety

The recent drama with banking institutions like Silicon Valley Bank and Signature bank has caused market panic and led to a flight to safety. Investors have moved away from riskier assets like stocks and towards bonds. This has pushed interest rates lower.

But even as this happens, the Fed will likely maintain a tough stance on rates and continue hiking them soon. That could make it harder for the economy to grow and inflation to resurge in the longer term, adding additional downward pressure on rates.

Related Facts

• The Fed will likely raise rates at its upcoming March meeting, which may signal that additional rate hikes are possible.
• The market is more concerned with future rate outlook than the Fed’s changes at any meeting.
• The recent drop in rates is driven by a flight to safety and expectations that the Fed will be able to start cutting rates by the end of the year.

Key Takeaway

The Fed’s upcoming rate hike may surprise some investors who expected rates to keep dropping. But in the longer term, the tough stance on rates could add downward pressure to rates. And while market movements can be complex, investors should be prepared for rate volatility in the coming months.

Conclusion

The relationship between the Fed, interest rates, and market movements is far from straightforward. But the Fed’s recent actions and upcoming meeting will impact rates. So despite recent drops, investors should know that a future rate hike and tough stance on rates could push rates down further in the longer term.