After Historic Lows, Will the Fed Raise Rates in 2021?

Rachel Curry - Author

Mar. 17 2021, Published 11:46 a.m. ET

Just over one year ago, the Federal Reserve System (more keenly known as the Fed) responded to the growing COVID-19 crisis by cutting interest rates by a full percent. This left interest rates close to zero. It was a tool to combat the forthcoming economic plight that left as much as 14.7 percent of the working U.S. population unemployed.

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Since then, interest rates have remained at 0.25 percent—the lowest since 2015. This was a way to spur economic activity by minimizing the cost of borrowing and it functioned as predicted, particularly in the housing sector. People still reduced their credit card debt and saved more money, despite the slashed reward for stockpiling. 

Economists expect the Fed to increase rates by 2023.

If 2021 isn't the year of raised rates, 2023 will be. Economists surveyed by Bloomberg say that two boosts will occur in 2023, which is a different outlook than previous sentiments suggested. A similar survey in December 2020 divulged that economists don't think that rates will change until at least 2024.

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When to expect an official decision from the Fed on interest rates.

After the two-day meeting, the Fed will publicize its economic projections on March 17. Forecasts include factors like interest rates (which impact a large part of the economy), unemployment, and inflation, among others. In particular, inflation is a concern for the Fed considering the trio of economic stimulus packages that have now been instituted.

Fed Chair Jerome Powell will speak on the matter at 2:30 p.m. ET on March 17, although he might not speak on rates in particular.  

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How economic growth plays into the rate calculation

The Fed slashed rates as a way to promote economic activity. With this in mind, economic growth is a sign that they might raise rates in the near future. According to Goldman Sachs, the 2021 economic growth forecast could reach as much as 6.2 percent. This is a lot higher than the December growth estimate of 4.2 percent. It could be a sign of heightened interest rates to come. 

Low unemployment is also tied to economic growth. Currently, the U.S. unemployment rate is 6.2 percent. Experts suggest that the rate could drop to 4.4 percent by the end of 2021, which is another sign of raised rates to come. 

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Will 2021 be the year for higher interest rates?

The general consensus ahead of Powell's briefing is that the Fed won't touch interest rates in 2021. The rates could stay at the 0.25 percent rate for the rest of the year. Instead, 2023 might be the year we'll see it happen. This could be good for the stock market and it shouldn't have a negative impact on the economy by then.

Where to catch updates from the Fed

All of the news and updates can be found on the Federal Reserve website under the "News & Events" tab. Until Powell briefs Americans on the economic forecast, a live video remains up of the Capitol building (instrumental music included).


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