Fed Chair Jerome Powell watched inflation surge to a staggering 9.1%, a 40-year high, before hiking rates to the highest in 28 years.
The US Federal Open Market Committee (FOMC) will begin its meeting today, September 19. The outcome is due to be known tomorrow, Wednesday, September 20.
There’s been a lot of speculation about the direction the federal reserve will take concerning interest rate hikes. While a pause is most likely, the chances of a cut in rate is slim.
FOMC Meeting point to a stay of rates
The FOMC which sets the interest rates of the US will meet on Wednesday to determine whether to continue with their anti-inflation interest rate hikes or to pause.
Fed Chair Jerome Powell watched inflation surge to a staggering 9.1%, a 40-year high, before hiking rates to the highest in 28 years.
Fed officials have indicated that they may hold interest rates steady to examine how the past 11 rate hikes since March 2022 have affected the economy. They will also look at whether inflation will continue its slow descent to the Federal Reserve’s 2% target.
Since the start of the hikes, the economy has seen inflation fall by more than half, the job market cool from heated up to comfortable, and interest rates for mortgages, credit cards, etc increase in an effort to slow spending and allow the forces of supply and demand close on a rebalance.
The Feds will have substantial data at their disposal to work with. But pending when their decision will be released, here’s what may occur.
Read more: The pause-and-skip Federal Reserve: Powell’s next hike under the radar
Rates won’t change
In the past few months, inflation has cooled down with recent CPI data pointing only to rise in gasoline prices as detrimental. The latest Consumer Price Index (CPI) for August revealed that core CPI excluding food and energy is up 4.3%. Generally, inflation rose 0.6% between July and August, the highest in 15 months.
The personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation, increased from 3 percent in June to a rate of 3.3 percent over the prior 12 months in July.
The CME FedWatch Tool estimates that there is a 99% likelihood that the Fed will maintain its federal-funds rate goal of 5.25%–5.5%. This tool reflects wagers that bond traders place on the path of interest rates. Since the central bank began rising rates in March 2022, this would mark the first time it held rates steady over two sessions.
Powell is still talking “let’s fight.”
Powell has been reluctant to show any sign of backing down on the fight against inflation. A higher interest rate doesn’t seem to faze the Fed Chair.
Stopping a further increase in rate may lead to financial conditions loosening with market price for a lower trajectory. This will be in direct conflict with the Fed, who’s insisted that its uncertain inflation has been contained.
The chances of one more hike this year stands close to 50/50 with dovish officials acknowledging that it might be high time to pivot towards lowering rates.
“Recent data should leave the Fed encouraged by ongoing disinflation but concerned about re-acceleration in inflation because of the strength in activity,” Bank of America economist Michael Gapen and others wrote, saying that “risks are skewed” for rates to remain higher than anticipated through 2024.
The decision by the Fed on Wednesday will be important for households who may have to examine how much slowing the economy might impact daily living. But as it stands, it doesn’t seem that borrowing costs will be any cheaper anytime soon.
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