Since March 2022, the Fed’s key rate has been raised by 5 percentage points, to remain between 5 and 5.25%.
Analysts say the Fed is closer to “fixing” at its next meeting “to monitor the impact of this on the real economy and, more importantly, to avoid causing a recession, especially as the Spring banking crisis has made banks more cautious with lending.”
The Fed’s decision is expected to be announced Wednesday evening. After that, the foundation’s president, Jerome Powell, will hold a press conference.
25 base points over two games
University of Southern California professor Jonathan Aronson estimates the US Federal Reserve will resort to a 25 basis point interest rate hike at either of two meetings, which either the next or the next.
And he said in a statement to “Sky News Arabia Economy” that if the Fed fixes interest at its next meeting, it will raise it at the next meeting, adding that “the consensus now is that there will be a another quarter point added at the next meeting or the one after.”
Federal Reserve officials had indicated that interest rates were likely to remain at current levels at their June 13-14 meeting before preparing to raise them again later this summer.
- There are expected to be fierce debates in the committee and “it is unlikely that a unanimous vote in favor of the suspension will take place with the presence of a number of hawks”, according to Gregory Daco, chief economist at “EY”, in previous statements.
No surprises
For his part, economic thinker, Professor of Economics at Western University, Michael Parkin, says in exclusive statements to “Sky News Arabia Economy”, that the US Federal Reserve faces two paths; It will either make a decision to “fix” the interest rate or raise interest rates by 25 basis points, as at the previous meeting in May.
The Monetary Policy Committee will also update its forecasts for GDP growth, unemployment and inflation. It will determine how high prices can go.
Parkin thinks there are unlikely to be any surprises in the Fed’s decisions, and he thinks the first scenario (keeping interest rates as they are) is the most likely, in terms of maintaining the interest rate as it is in a range between 5 and 5.25 percent.
The economic thinker, professor of economics at Western University, doesn’t believe the US Federal Reserve will adjust policy anytime soon and move toward an interest ‘cut’, explaining that ‘the interest cut won’t happen this year…and it’s also unlikely to be in the first quarter of 2024,” stressing that “inflation must be pegged at 2% before interest rates are cut.”
The inflation rate rose again in April, as measured by the Federal Reserve’s preferred personal consumption expenditure index, to 4.4% on an annual basis.
The World Bank has raised its expectations for the growth of the global economy in the current year from 1.7%, according to its expectations published in January, to 2.1%, in its latest report, “Global Economic Prospects”, against 3.1% reached by the economy in 2021, and the bank revised its expectations concerning the growth of the American economy by bringing it in 2023. to 1.1% against 0.5% in January, but it also halved its forecast for the world’s largest economy in 2024, to 0.8% from 1.6%.
slowing inflation
Additionally, Williams College Economics Professor Kenneth Kutner says in statements exclusive to “Sky News Arabia Economy”:
- I don’t expect any surprises at the next US Federal Reserve meeting.
- There could be some trend towards a slight increase in interest rates due to surprisingly strong employment data.
- But since inflation already appears to be easing, the Fed will likely do as expected and suspend interest rate hikes (hold).
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p class=””>On future trends after that for the rest of 2023 and into next year, Kuttner says if and when the Fed will cut the funds rate, “it will very much depend on economic developments, so it is very difficult to predict now.”
And he adds, “As long as job growth continues, I think the Fed will tend to keep the rate the way it is. clear signs of that now, especially with job growth improving, but anything can happen in six months.”
US employment rates rose again in May.
- 339,000 jobs were added, beating estimates and increasing by well over 294,000 jobs in April.
Meanwhile, the jobless rate rose to 3.7%, from its all-time low of 3.4%.
Wages rose slightly, with average hourly earnings up 0.3%, down slightly from 0.4% in April, according to government data.
- US President Joe Biden commented on the data saying, “Today is a good day for the American economy and for American workers.” He added that the unemployment rate has fallen below 4% for 16 consecutive months.
And economist Lydia Bosor in ‘EY’ said earlier: ‘I think we’ll see a commentary next week’, saying there’s ‘enough support’ to make it happen among members of the Policy Committee. monetary policy of the Federal Reserve, according to Agence France-Presse.
Philip Jefferson, a member of the Fed’s board of governors and vice-chairman-designate, said in remarks that this “will allow us to look at more data before making decisions on how big” the increases are still needed.
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p class=””>monetary stress
And VI Markets Executive Director Ahmed Moati says in exclusive statements to “Economy Sky News Arabia” that market expectations favor interest rate fixing, but in many cases the Fed is violating those expectations.
And he adds: “The Fed continues to confirm that inflation rates are high – relative to target rates – as well as jobs data, which while some of it is broadly positive, others are still negative, especially on unemployment benefits (which saw a bigger than expected increase in (latest weekly data released), then jobs data with stark inconsistencies leaving the Fed at a loss.
The CEO of VI Markets believes that the Fed will, in any case, tend to continue the policy of monetary tightening (the sum of the measures taken by central banks to reduce the demand for money), whether by raising interest rates interest rate (at a rate of 25 basis points) or by a policy of tightening credit, especially since the declarations of the chairman of the Federal Reserve, Jerome Powell, have been clear in this context, giving priority to reduction in inflation rates.
It should be noted that the policy of tightening credit is due to the crisis of American banks, starting with Silicon Valley, and that banks have resorted to tightening loans to investors, and in the light of the objective of the Federal Reserve to reduce liquidity in the markets, “and therefore, in all cases, whether the interest rate is fixed or raised, the Fed always pursues a policy of monetary tightening.
Speaking at a monetary conference in Washington last month, the chairman of the US Federal Reserve said: “Financial stability tools have helped ease conditions in the banking sector. affect economic growth, employment and inflation.
He continued: “As a result, we will not need to raise interest rates to the high levels we previously aimed to achieve to fight inflation.”
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