There are three possibilities for what the Fed might do moving forward, according to economists.
The Federal Reserve is expected to announce later on Wednesday that it will raise its benchmark lending rate to the highest level in 22 years.
Investors will be looking for more details around that potential hike. While it could happen at the September or November meeting, it's also possible that July could see the last hike of this cycle. The second hike coming in December is unlikely, but possible if inflation re-emerges because of an unforeseen economic shock.
That's all thanks to inflation's cooldown. The Consumer Price Index rose 3% in June, a much slower pace than the four-decade high of 9.1% in June 2022. The Fed's preferred inflation gauge -- the Personal Consumption Expenditures price index -- rose 3.8% in May from a year earlier, down from the 4.3% annual rise seen in April. The Commerce Department releases the June reading of the Fed's favorite inflation measure Friday.
The end of rate hikes would usher in the next phase of the Fed's inflation fight, which would likely be to simply hold rates steady until inflation is fully tamped down. That could take a several months or even a year. The Fed held rates steady for nine straight meetings over the span of a year the last time it paused a rate-hiking campaign in 2006.
Higher labor costs loom large for service-providing businesses such as restaurants and hospitals. Those are labor-intensive industries, so having to beef up compensation to hire enough staff means those higher costs can be passed on to consumers. Though for some businesses, it has become harder to pass costs on, according to anecdotes in the Fed's Beige Book, a compilation of survey responses from businesses around the country.
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