How High Will Rates Go? The Fed Thinks 4.6%

The Federal Reserve has stayed as hawkish as Wall Street expected, with its third straight 0.75 percentage point hike in the benchmark federal funds rate Wednesday. But what’s really significant is the Fed policymaking committee’s take on the future: It thinks the rate will top out at 4.6% next year, which implies a further increase of 1.5 points or so.

At that stage, Fed Chair Jerome Powell remarked at his news conference Wednesday afternoon, “we will get a positive number” of one point or so above inflation. Right now, the benchmark is below inflation. The new band for the fed funds rate is 3.0% to 3.25%.

The Personal Consumption Expenditures Index, the Fed’s preferred inflation metric, now stands at 6.3% (the more widely known Consumer Price Index is at 8.2%). The Fed forecasts that the PCE will slip to 5.4% by year-end and to 2.6% in 2023. In other words, the central bank believes its medicine will have worked, or almost—its goal is a PCE of 2%.

Interest rates are obviously taking the Fed’s cue. The one-year Treasury yield just topped 4.0%, up from 0.6% in early August.

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The pace of the Fed’s increases going forward is anyone’s guess. Jeffrey Roach, chief economist for LPL Financial, wrote in a research note after the Fed’s announcement that the next boost likely will be 0.5 point, a slight deceleration from the 0.75 surge.

His reasoning: The Fed hikes are starting to slow the economy. “We are already seeing August rents decline all across the U.S. and imported food prices decline … so the upcoming inflation reports could be surprisingly better than expected,” he wrote.

How long will rates stay elevated? Charlie Ripley, senior investment strategist at Allianz Investment Management, wrote in a note that “the Fed believes they need to be more aggressive with regards to policy by bringing rates even higher and holding them there for a longer period of time.”

We’re talking the next two years. The Fed’s projection is that it will begin reducing the rate in 2024 to 3.9% and in 2025 to 2.9%.

Notably, the Fed doesn’t anticipate a really painful unemployment situation developing, with joblessness projected to rise to 4.4% in 2023 and 2024. The jobless number now is 2.7%. During the last period of aggressive Fed action to combat inflation, unemployment was much worse—the rate soared to 10.8% in mid-1981.

Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment, will step down at the end of January after more than 16 years at the helm. A press release from the organization says Woll will stay on as an adviser through April to help with the transition.

Woll, who joined US SIF in 2006, has been responsible for the organization’s strategic planning, as well as developing policy presence and expanding and diversifying funding. She also launched US SIF’s national conference and created the Center for Sustainable Investment Education, which provides education and research on sustainable investment.

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Prior to her time at US SIF, Woll was executive director of the International Women’s Media Foundation, which focuses on press freedom and expanding women’s role in the media. Before that, she was senior adviser on child rights at Plan International, a development and humanitarian organization.

“I want to thank Lisa for her immense contributions to US SIF and the US SIF Foundation and her work advancing the sustainable investment field,” Diederik Timmer, chair of US SIF’s board of directors, said in a statement. “The board is also grateful for her thoughtful and diligent approach to supporting us with a smooth transition. Lisa will be deeply missed, but I know that what she does next will be as impactful as what she was able to achieve at US SIF.”

The US SIF board said it has formed a search committee to appoint a new CEO and has hired executive recruitment firm Korn Ferry to lead the search process.

“I believe that we will attract a diverse and talented pool of candidates and am confident we will find an outstanding new CEO,” said Timmer. “The board is seeking a candidate who will further grow the impact and reach of the organization by continuing to effectively serve US SIF members, advance the field and promote industry best practices.”

The search will be led by led by Kate Shattuck, senior client partner, global financial services and co-leader, impact investing, and Becky Graham, principal and association practice leader.

“Serving as US SIF’s CEO has been the professional highlight of my career,” said Woll in a statement. “I love this job and am so proud of the impact our field has generated, but I am ready for my next professional adventure,” she said, adding that “as Serena Williams said at the start of this year’s US Open, ‘I am not retiring, but evolving.’”