January 27, 2023

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Stocks struggle after the Fed eased rate hikes

The pace of rate hikes by the Federal Reserve may be slowing, but “the hard work is ahead” for the central bank as it seeks to bring down inflation with minimal economic pain, said Greg McBride, Bankrate’s chief financial analyst.

“The Fed is confident it can raise interest rates above 5% in 2023 without unemployment rising above 5%, despite slow economic growth. Optimistic? Every football coach on Friday says they’re going to win this weekend – although half of us know they’re going to lose,” McBride said in a statement.

With historically low unemployment and decades of high inflation, it was easy — and necessary — for the Fed to move aggressively in 2022, McBride noted.

That path will become more challenging in 2023, he added.

“It becomes much more difficult to raise interest rates when the economy slows, unemployment rises and inflation remains stubbornly high,” he said. “Happy New Year, Mr. Powell!”