US Federal Reserve officials meet this week and are likely to hold off on raising the key interest rate for the first time since March 2022, to avoid triggering a recession despite rising inflation.
“I think we will see a comment next week,” said economist Lydia Bosor at EY, saying that there is “enough support” to achieve this 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-chair-designate, explained that it “will make it possible to watch more data before making decisions about the size” of the increases that are still necessary.
Since March 2022, the Fed’s key interest rate has been raised by 5 percentage points, to remain between 5 and 5.25 percent.
This will lead to banks raising the cost of loans they provide to households and companies, in order to discourage consumption and investment and thus reduce pressure on prices.
After ten consecutive increases, US central bank officials, who meet on Tuesday and Wednesday, want to wait in order to monitor the impact of this on the real economy. Above all, avoid triggering a recession, especially since the spring banking crisis made banks more cautious about loans.
As a result, more than two-thirds of market players now intend to put rate hikes on hold, according to forecasts by CME Group.
The Fed’s decision will be announced Wednesday at 14:00 (18:00 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 within 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 seems to be so strong that prices keep going higher.
The rate of inflation rose again in April, as measured by the personal consumption expenditures index favored by the Federal Reserve, to 4.4 percent 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.
One Royal: The Fed faces a dilemma, but it will prove useful
In the labor market, the labor shortage persists despite the improvement of the situation.
Job creation in May was much higher than expected, but the unemployment rate rose more than expected at 3.7 percent. Weekly applications for unemployment benefits in early June reached their highest levels since October 2021.
But suspending interest rates does not mean that the job is done. Bosor indicated that Fed officials “will send a message that this does not mean the end of the tightening policy cycle.”
It added that a new hike in the interest rate during the next meeting scheduled for the end of July is “on the table.”
The Monetary Policy Committee will also update its forecasts for GDP growth, unemployment and inflation. It will determine how far prices can go up.
Accordingly, Diane Swonk, chief economist at KPMG, “expects that the Fed will revise its path to raise interest rates,” expecting “higher rates for longer.”
BDSwiss: The Fed will not raise interest rates this month
2023-06-11 15:36:53
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