Inflation rate and inflation expectations have both returned to the level of two years ago. Will the Fed continue to raise interest rates?
July 11 news from the Financial Associated Press (Editor Zhao Hao)On Monday (July 10), local time, the New York Fed Microeconomic Data Center released the Consumer Expectations Survey (SCE) for June.
Specific data show that the median expectation of the respondents for the inflation rate in the next year is 3.8%, the third consecutive month of decline, 0.3 percentage points lower than May’s 4.1%, the lowest level since April 2021 .
Fed officials have repeatedly cited inflation expectations readings as a key driver of current inflation conditions. The highest value for this measure since being tracked by the New York Fed was 6.8% recorded in June last year, which means that short-term inflation expectations have cumulatively retreated by a full 3 percentage points.
The data also showed that the median inflation rate expected by respondents for the next three years was 3%, consistent with the reading in May; the median expectation for the inflation rate in the next five years was also 3%, an increase from the previous month. 0.3 percentage points.
The apparent decline in short-term inflation largely reflects the role of the Federal Reserve’s high interest rates. Before the June monetary policy meeting, the bank has raised interest rates 10 times since March 2022, with a cumulative rate hike of 500 basis points.
At its June meeting, the Fed paused raising interest rates for the first time in more than a year, explaining that “the move will give officials more time to assess the economy’s progress toward its goals of maximum employment and price stability.”
However, in terms of economic data, the U.S. CPI recorded 4% in May, which has returned to its lowest level since April 2021. At the same time, the non-farm payroll report also showed signs of slowing U.S. employment growth.
Some industry experts believe that the Fed is unlikely to raise interest rates by 50 basis points within the year as in the “dot plot”. David Kohl, chief economist at Julius Baer, believes that with U.S. inflation on a sustainable downward trajectory, no further interest rate hikes are expected or necessary this year.
While Fed officials have repeatedly stressed that “the 2% inflation target is still a long way off,” Kohl noted that another rate hike this year will do little to improve inflation outcomes in 2023, given the long-term lag in the impact of monetary policy on the economy. Nothing works.
Housing prices may be an upside risk to inflation
On the 1-year inflation expectations sub-item, median forecasts for gasoline and food prices fell, but expectations for health care, higher education and rents rose. Separately, respondents expect home prices to rise 2.9 percent over the next year, showing signs of accelerating and potentially complicating the Fed’s efforts to fight inflation.
The housing market is gradually recovering despite the Federal Reserve’s efforts to slow the economy. That could mean the Fed will have to keep raising rates and keep them there for longer to bring inflation back down to the Fed’s 2% target.
Federal Reserve Chairman Powell said at a press conference in June, “We now see that the housing market is bottoming out and may even rise.” Dallas Fed President Logan also mentioned last week, “The rebound in the real estate industry will be Potential source of risk for future price pressures.”
2023-07-10 17:46:00
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