“I think we’ll see a commentary next week,” said economist Lydia Bosor at EY, noting that there’s “enough support” to make it happen among members of the Federal Reserve’s Monetary Policy Committee, according to Agence France-Presse.
More recently, Philip Jefferson, a member of the Fed’s board of governors and vice-chairman-designate, explained that this “will allow us to look at more data before making decisions on the size” of the increases that are still necessary.
Since March 2022, the Fed’s key rate has been raised by 5 percentage points, to remain between 5 and 5.25%.
This will lead banks to increase the cost of the loans they grant to households and companies, in order to discourage consumption and investment and therefore reduce the pressure on prices.
After ten consecutive increases, the officials of the American central bank, who meet on Tuesday and Wednesday, want to wait in order to monitor the impact on the real economy. Above all, avoid triggering a recession, especially since the spring banking crisis has made banks more cautious about lending.
As a result, more than two-thirds of market participants now intend to hold off on rate hikes, according to CME Group forecasts.
The Fed’s decision will be announced at 2:00 p.m. Wednesday (6:00 p.m. GMT) in a statement. After that, the foundation’s president, Jerome Powell, will hold a press conference.
New high in July?
In any case, heated debates are expected in the committee and “it is unlikely that a unanimous vote in favor of the suspension will be given with a number of hawks”, said Gregory Daco, chief economist at EY.
The US economy is holding up much better than expected and looks so strong that prices continue to climb.
The inflation rate rose again in April, as measured by the Federal Reserve-favored personal consumption expenditure index, to 4.4% year-on-year. The release of another measure, the consumer price index, on Tuesday, the first day of the Fed’s meeting, could tip the scales one way or the other.
On the labor market, the labor shortage persists despite the improvement in the situation.
Job creation in May was much stronger than expected, but the unemployment rate rose more than expected to 3.7%. Weekly jobless claims in early June hit their highest level since October 2021.
But suspending interest rates does not mean the job is done. Bosor said Fed officials “will send the message that this does not mean the end of the policy tightening cycle.”
He added that a further interest rate hike at the next meeting scheduled for late July is “on the table”.
The Monetary Policy Committee will also update its forecasts for GDP growth, unemployment and inflation. It will determine how high prices can go.
As a result, Diane Swonk, chief economist at KPMG, “expects the Fed to revise its course to raise interest rates,” expecting “higher rates for longer.”
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