The US Federal Reserve (Fed) is expected to halt rate hikes for the first time in its 11th policy meeting on Wednesday. But investors don’t expect the moratorium to last long.
A pattern of halting and then resuming interest rate increases is taking hold around the world.Reserve Bank of Australia Paused your own campaign The Fed has only raised interest rates twice this year, including last week.Bank of Canada keeps interest rates on hold for four months before growing again On June 7th, he made a surprising move.
That’s because inflation has proven to be stubborn. From Melbourne to Munich to Miami, the situation is hard to eradicate in different economies. Many central banks are battling inflation, but the pace is slowing, supported by rising costs for services such as concert tickets, rent and hotel rooms.
“Everyone has similar problems,” said William English, a former Fed official and now at Yale University, who said policymakers in the UK and eurozone had much in common with the Fed. He pointed out that he was facing a problem. Policymakers at the European Central Bank are also expected to meet this week to continue raising rates.
Policy could become even more difficult to predict in the coming months, as officials try to determine whether interest rates are high enough to ensure an economic slowdown sufficient to keep prices down.
“We’re in a bit of a fumbling period,” said English. “It’s going to be a very uncertain time.”
The Fed has already raised interest rates significantly over the past 15 months, reaching just over 5% in May, and its high interest rates are percolating through the economy.
Fed officials hinted in a recent speech that they may soon “skip” rate hikes in order to have time to assess the impact of the changes so far, with investors betting Fed officials said they plan to keep policy unchanged at their meetings on Tuesday and Wednesday before raising rates again in July. But these predictions are uncertain. Traders usually have a pretty clear idea of what the Fed will do leading up to its meeting, but this time the market sees a small but realistic chance that the US central bank will raise rates this week. there is
This question is partly due to the fact that the Fed is due to receive its key inflation indicator, the Consumer Price Index, on Tuesday. But it also reflects what a difficult time this is for US and global economic policy.
It’s been a long time since global policymakers debated the issue, as it is the worst inflationary episode in the United States and much of its economy since the 1970s and 1980s. Inflation is also showing signs of staying power, although it is slowing.
In the United States and elsewhere, inflation started in goods such as cars and furniture, but also in services such as airfare, education and haircuts. This is worrisome because service price hikes tend to be driven by broader economic developments, rather than temporary supply issues, and can last even longer.
Reserve Bank of Australia Governor Philip Lowe said: “We are seeing continued service price inflation both at home and abroad.” in speech I explained the surprising move of the central bank last week.
Fed officials worry today’s price rise could persist.
wage increase The rate of price declines could be limited as employers try to cover rising labor costs. And while a slowdown in rent growth should cool overall inflation, some economists question whether that alone will be enough to bring inflation down steadily.
Fed Governor Christopher Waller, who often supports rate hikes, said the recovery in the housing market raises the question of how long these low-rent increases will last. recent speech.
At the same time, central bankers don’t want the economy to slip into a more painful recession than it needs to.
That’s why the Fed could go into suspension this week. Officials recognize that it will take months or even years for monetary policy to take full effect. Also, the recent banking turmoil could further slow lending and spending, and authorities are still monitoring the situation.
“Anecdotally, it’s not that bad, but we don’t even have enough research data,” said Yelena Shulyatyeva, senior US economist at BNP Paribas.for more evidence she will watch Dallas Fed Survey this month.
Still, after Australia and Canada raised interest rates last week, investors asked: “Will this mean the Fed will also be more aggressive than expected?”
Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, said the Fed could halt in June while preparing for a possible move in July. He pointed out that the potential is still high. He said the rate hikes abroad highlighted stagnant global inflation, which shouldn’t come as a surprise.
“We know inflation is frustratingly slow to come down,” he said.
