“Federal Reserve to Halt Interest Rate Hikes Amid Slow Inflation Growth, According to Wall Street”

Investing.com – After inflation rose at its slowest annual pace in two years in April, according to the latest data from the Bureau of Labor Statistics last Wednesday, it made Wall Street bet that Jerome Powell and the Federal Reserve would halt the most aggressive rate hike cycle in four decades at Its next meeting is in June.

“We expect the FOMC to maintain interest rates at their current level for the foreseeable future and for inflation to slow further in the coming months as supply pressures continue to ease and demand growth subdues,” the team of economists at Wells Fargo wrote.

The Consumer Price Index (CPI) revealed that headline inflation rose 0.4% m/m and 4.9% y/y in April, slightly below economists’ expectations and down from the 5.0% annual increase in March.

Federal Reserve Chairman Jerome Powell signaled what some Wall Street economists considered a “hard pause” during his May 3 press conference. Powell did not close the door on future rate hikes, as he pointed out the key wording that the Fed omitted from its statement about expecting further rate hikes.

The Fed raised interest rates by 0.25% at the May meeting, marking the 10th consecutive hike in the cycle. The central bank’s new benchmark interest rate, the federal funds rate, is now in a range of 5%-5.25%, the highest rate since September 2007. But with interest rates tightening on credit conditions, investors are now waiting for the moment when the Fed will pause and let go. The effect of higher interest rates is taking hold.

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Good reasons to stop raising rates

Bank of America (NYSE:) analysts see “good reasons” to pause interest rate hikes by the US Federal Reserve in June and “little reason” to cut rates.

Analysts expect the Fed to keep interest rates unchanged at the next meeting in June. With starting to cut interest rates early next year.

On the other hand, the markets continue to price in 3 rate cuts of 25 basis points for 2023, and a total of 160 basis points cuts until the end of 2024.

The bank’s analysts said, “We believe risk to the policy path remains present in the near term. This is because inflation is more than twice the Fed’s target rate and the unemployment rate is less than each FOMC participant’s estimate of the natural rate.”

“These facts alone suggest that the Fed’s bias will be to keep rates high rather than cut. But things could change quickly if there is a major recession, but the recent data stream suggests a more moderate slowdown. In our view, rather than leaning on a recession Moderate, the Fed will see it as an acceptable rate to get inflation back on target.”

On the data front, analysts highlight that recent releases show that the labor market is getting weaker while inflation also continues to decline.

“While there are reasons for encouragement, inflation is declining only gradually. Furthermore, we continue to anticipate that labor market rebalancing will be needed to bring inflation back to the Fed’s 2 percent target on an ongoing basis. So, it’s not too late. Time to take a victory run.”

Gregory Daco, chief economist at EY, said: “The inflation report does show a trend toward some potential monetary tightening, but if you dig deeper into the details of this report, it actually shows more potential for possibly a pause. to increase interest.

pressures of the banking crisis

Recent pressures within the banking system are stoking fears that the impending credit crunch could tip the economy into recession. Some monetary policymakers have stated that the effect is ambiguous in a significant way, and others believe it may help dampen price pressures.

Although inflation in the US has been the driver of rapid increases in the Fed’s interest rates over the past year, monetary policy officials have indicated that tightening credit will likely weigh heavily on how they operate as the end of the rate hike cycle nears.

Anna Wong, chief US economist at Bloomberg Economics, said: “While the April consumer price index report is not very reassuring, it does not cause concern for Federal Reserve officials to signal another rate hike in June, given their expectations that The effect of the full credit tightening to reduce the resulting inflation is not yet clear. Nevertheless, the slow progression in declining core inflation highlights how likely the Fed is to cut rates this year.”

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