< Back to Topic

Fed Raises Rates at July Meeting: Where From Here

Tom Wald, CFA®, Chief Investment Officer, Transamerica Asset Management, Inc.

 In this article we review: 

  • The Fed’s decision to increase the Fed Funds Rate at its July meeting
  • Why we believe this is likely the final rate hike for the year and this tightening cycle
  • The expected lagging effects of previous rate hikes not yet felt in the current economy
  • How the current inflation adjusted real interest rate could play a role in Fed policy decisions looking forward

On July 26, the Federal Reserve concluded its most recent meeting with the decision to raise the federal funds rate by 0.25% to a target range of 5.25–5.50%. Given this widely expected outcome against the backdrop of current economic and market conditions, we view the following points as relevant to investors.


  • The Fed’s position on further rate hikes remains data dependent. Aside from the fed funds rate itself, very little changed in the wording of the Fed’s post-meeting statement, and, in his press conference, Chair Jay Powell reiterated the fight against inflation “still has a ways to go.” He also emphasized that Federal Open Market Committee rate decisions would be data driven and made on a “meeting by meeting” basis. In hedging himself and the other members on future policy actions, Chair Powell further commented, “It’s certainly possible that we will raise funds again at the September meeting if the data warranted … And I would also say it’s possible that we would choose to hold steady.


  • Our best assessment is the Fed will conclude the year and this tightening cycle without further rate hikes. It is our estimate at this time that the Fed will likely conclude this calendar year with the fed funds target range unchanged from its new level of 5.25%–5.50% and without additional rate hikes. Top criteria pertaining to this judgment include the lagging impacts of previous rate hikes since March of last year as well as the positive and potentially expanding levels of inflation-adjusted real interest rates. That said, we do not expect the Fed to reduce its target range on the fed funds rate until at least into CY 2024.


  • Lagging effects of previous rate hikes could impact economic growth in 2H 2023. With 525 basis points (5.25%) of previous rate hikes over the past 16 months yet to be fully incorporated into the economy, we believe economic growth could weaken in the months ahead, contributing to future Fed decisions not to raise rates from present levels. It is important to recognize that standard economic thought typically believes it takes anywhere from 12–18 months for each interest rate hike to fully filter through the economy. This would infer less than half of all the Fed’s tightening since March 2022 is currently being felt in day-to-day business activity, though that is likely to increase throughout the months ahead.     


  • We view the (inflation-adjusted) real rate of interest as being likely to expand in the months ahead, further supporting an end to the Fed’s tightening cycle. On July 28, the Bureau of Economic Analysis released the June Personal Consumption Expenditures (PCE) Inflation report, posting a year-over-year headline increase of 3.0% and a core (ex-food and energy) reading of 4.1%. This continues a declining trend since June 2022. More importantly, it expands the real interest rate (upper bound fed funds rate less core inflation rate) to 1.4% (5.5% less 4.1%), which, given the prospect of continuing declines in core inflation between now and year-end, could soon prove to be a wide enough spread for the Fed to hold tight at current rate levels and let the complete amount of previous hikes fully filter through the economy.  


  • It is also important to note that the Fed will now have two full months of future economic data to review before the upcoming September meeting. This will include not only two months of employment and retail sales data but also another PCE and two more consumer price index inflation reports, potentially allowing the real rate of interest to expand further prior to the Fed’s next decision.

In summary, while speculation and conjecture on the Fed’s future actions, or lack thereof, will undoubtedly continue in the months ahead and incoming economic data could create further market volatility, our best estimate remains that the Fed will conclude the year with a fed funds rate target range unchanged from current levels at 5.25%–5.50%.   


Investments are subject to market risk, including the loss of principal. Asset classes or investment strategies described may not be suitable for all investors.

Past performance does not guarantee future results. Indexes are unmanaged and an investor cannot invest directly in an index. 

Equities are subject to market risk meaning that stock prices in general may decline over short or extended periods of time.

Fixed income investing is subject to credit rate risk, interest rate risk, and inflation risk. Credit risk is the risk that the issuer of a bond won’t meet their payments. Inflation risk is the risk that inflation could outpace a bond’s interest income. Interest rate risk is the risk that fluctuations in interest rates will affect the price of a bond. Investing in floating rate loans may be subject to greater volatility and increased risks.

Growth stocks typically are particularly sensitive to market movements and may involve larger price swings because their market prices tend to reflect future expectations. Growth stocks as a group may be out of favor and underperform the overall equity market for a long period of time, for example, while the market favors “value” stocks. Value investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that an undervalued stock is actually appropriately priced. 

Investments in global/international markets involve risks not associated with U.S. markets, such as currency fluctuations, adverse social and political developments, and the relatively small size and lesser liquidity of some markets. These risks may be greater in emerging markets.

The information included in this document should not be construed as investment advice or a recommendation for the purchase or sale of any security. This material contains general information only on investment matters; it should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information does not take into account any investor’s investment objectives, particular needs, or financial situation. The value of any investment may fluctuate. This information has been developed by Transamerica Asset Management, Inc. and may incorporate third-party data, text, images, and other content to be deemed reliable.

Comments and general market-related projections are based on information available at the time of writing and believed to be accurate; are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions.

The 10-Year U.S. Treasury bond is a U.S. Treasury debt obligation that has a maturity of 10 years.

S&P 500® Index: An unmanaged index of 500 common stocks primarily traded on the New York Stock Exchange, weighted by market capitalization.

Transamerica Asset Management, Inc. (TAM) is an SEC-registered investment adviser. The funds advised and sponsored by TAM include Transamerica Funds and Transamerica Series Trust. Transamerica Funds and Transamerica Series Trust are distributed by Transamerica Capital, Inc. (TCI), member FINRA. TAM is an indirect wholly owned subsidiary of Aegon N.V., an international life insurance, pension, and asset management company.