U.S. Federal Reserve (Fed) officials are set to announce their June policy decisions on Wednesday, but they are widely expected to keep the policy rate unchanged after the 10th straight rate hike, but a combination of rapid inflation and the Fifteen months after the war, we are taking a breather to see how the economy is shaping up.
Prices have risen faster than the Fed would like for more than two years, but Tuesday’s report confirmed that the pace of overall inflation continues to slow. That doesn’t mean the Fed can declare victory. Even with the volatile food and fuel prices removed, the data showed that inflation remained stubbornly rapid.
Investors expect Fed officials to manage a complicated situation by not raising rates this month, even though they have hinted they could raise rates in July.
Still, the outlook remains highly uncertain and investors will be watching Wednesday’s Fed meeting closely for hints of what might happen next. Central bankers will announce interest rate decisions and new economic outlook at 2:00 pm, followed by a press conference with Fed Chairman Jerome H. Powell at 2:30 pm. Here’s what you need to know about this decision.
Interest rates are at their highest level since 2007.
Fed officials have raised interest rates significantly since March 2022, pushing rates to just above 5% in the fastest series of hikes since the 1980s.
The speed of the adjustment is important, as it takes months or even years for the effects of a change in interest rates to fully percolate through the economy.
With that in mind, you probably feel that the economy is only bearing the brunt of what the Fed has done in the past. So if officials proceed without taking time to assess the situation, they run the risk of overdoing it and slowing growth more than strictly needed to keep inflation under control.
Overshoot will have serious consequences. Containing the economy too aggressively would very likely result in job losses and undermining the economic security of many Americans.
But an imperfect policy response will have consequences. If rapid inflation persists for years, consumers may come to see rapid price increases as the norm, keeping them out of trouble without the serious economic pain that causes rising unemployment in the future. Getting out will be difficult.
Skipping does not mean stopping.
If monetary policy decisions are like running a marathon, a pause now is more like stopping for a break, stretching and seeing what’s going on, rather than stopping running altogether. Fed officials have clarified that policy could be temporarily suspended but could raise rates again if needed.
Fed Governor Philip Jefferson, who was nominated by President Biden to be the next vice chairman of the central bank, said, “The decision to keep the policy rate steady at its next meeting should not be interpreted to mean that the highest interest rate of the cycle has been reached.” said. said in speech last month. Rather, skipping “allows the commission to see more data,” Jefferson said.
Wells Fargo senior economist Sarah Watt House said Tuesday’s inflation data likely kept officials on track for a rate hike in July while aiming to keep policy on hold in June. rice field.
“They are going to walk a very fine line,” she says. “The U.S. economy continues to have considerable momentum.”
Investors are watching.
Every three months, the Fed releases a series of forecast “dot plots” showing where each official expects rates to reach by the end of the next few years. (Predictions are anonymous and separated by small blue dots, hence the name.)
The dots are displayed alongside a series of forecasts for unemployment, inflation, and growth. It will go on sale on Wednesday for the first time since March.
Some economists expect the Fed to pick up slightly higher economic growth, slightly higher core inflation and slightly lower unemployment by the end of 2023. One complication is that officials have little time to update their forecasts before the end of 2023. In response to Tuesday’s consumer price index report.officials had until Tuesday evening But that meant we only had a few hours to take the new numbers into account.
Perhaps what investors will be most interested in is how much interest rates are expected to rise this year. Many expect Fed officials to make another rate decision, raising the expected policy rate to a range of 5.25% to 5.5% at the end of 2023. However, given the differing opinions in central bank policy committees, the forecast may be as follows. at an even higher rate.
Everyone’s eyes are on Jerome Powell.
Fed Chairman Jerome H. Powell will hold a press conference after the meeting. He asked what central bankers think about the future direction of interest rates and how officials believe that inflation, currently hovering at 4.4%, is back on track toward a desirable 2.5%. You may explain how you determine whether you have taken sufficient action to convince yourself that percent target.
“I think the main message is that a moratorium doesn’t necessarily mean the end of the rate hike cycle,” said Michael Feroli, chief U.S. economist at JPMorgan.
