The bigger question is if there’s one more hike coming after that in 2023, and how long the Fed intends to hold rates at currently high levels for. Of course important inflation and jobs releases for June that will come before the Fed meets that could alter the Fed’s thinking too. So it seems likely that the Fed will raise rates in July, though more clues will come from Fed statements over the coming weeks. That said, it is not clear that every Fed participant shares this view, for example from the Fed’s Summary of Economic Projections from June 14, it appears that two policymakers forecast holding rates steady from here until the end of 2023, though all others do see rates moving higher to varying degrees before year end. Consumer prices have been rising at the fastest pace in 40 years. If that were to occur it would take short-term rates up to 5.25%-5.5%. The Federal Reserve raised interest rates by half a percentage point Wednesday, in an effort to cool off demand and lower inflation. The CME’s FedWatch Tool which measures market expectations of Fed moves, sees an over eight in ten chance that a hike is coming on July 26. The Fed’s last rate increase marked the 11th time the central bank has raised interest rates since 2022. This suggests a hike for a July is likely, though the Fed’s plan beyond that in terms of potential rate hikes is less clear. In testimony before Congress on June 21, Fed Chair Jerome Powell said, “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.” He also said that the inflation fight, “has a long way to go.” In addition, in a press conference after the June interest-rate decision, Powell referred to holding rates steady as a “skip”, implying that we could see rates move up again in July. Importantly the jobs market has remained strong enough to enable the Fed to fight inflation with limited concerns of causing a recession, even though the inverted yield curve might suggest otherwise. The poll also showed that a short and shallow US recession is likely this year. The US Federal Reserve will deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023, according to a Reuters poll of economists. Basically, core inflation has proven hard to tame, even though headline inflation has dropped. US Fed likely to deliver 25-basis-point interest rate hike then pause for rest of year. For 2023 so far, the Fed has won out over the market. Top Fed official signals interest rates to stay on hold September 3 2023.
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