What to expect from central bank meeting


Washington DC
CNN

The Federal Reserve is expected to raise interest rates by half a point at the end of its two-day policy meeting on Wednesday, a sign that the central bank is scaling back its aggressive stance as signs of easing inflation begin to emerge.

While that increase will be smaller than the three-quarter-point hikes announced at the past four Fed meetings, it’s nothing to scoff at.

That would be double the Fed’s usual quarterly point hike, and a significant increase would cause economic pain for millions of American businesses and households by raising the cost of borrowing for homes, cars and other loans.

The central bank’s expected move will raise the rate banks charge each other for overnight borrowing to a range of 4.25% and 4.5%, the highest since 2007.

Federal Reserve Chairman Jerome Powell Confirmed last month Expect small rate hikes, “The time to moderate the pace of rate hikes may come after the December meeting.”

The most recent measure of inflation, as measured by the Consumer Price Index, Year-on-year inflation eased to 7.1% in November. But inflation is unlikely to ease dramatically anytime soon, partly because of continued pressure on wages amid a labor shortage. Still, Wall Street appears to believe the Fed will eventually be forced to back away from its rate hikes or modify its terms. Traders are mostly pricing in rate cuts in the second half of 2023.

The central bank will end its rate hike regime in the second quarter of next year. JP Morgan analysts predicted On a recent note. “As inflation continues to fade and fiscal policy remains on hold, the Fed will end its tightening cycle early in the new year and inflation will begin to decline by the end of 2023,” they wrote. Analysts expect two quarter-point increases in the first half of 2023.

See also  Tom Verlaine, Singer and TV Guitarist, Dies at 73 - Rolling Stone

But the average time between peak interest rates and the Fed’s first cuts is 11 months, which could mean they could be raised until 2024, even if the Fed stops raising rates aggressively.

Investors will carefully read the central bank’s economic outlook, a summary of economic forecasts, due out on Wednesday. They’ll watch Powell’s press conferences for clues about what’s to come — and they may be very disappointed.

“We expect Fed Chair Powell to emphasize the need to keep policy at a restrained level for some time to bring inflation down to the 2% target,” Gregory Taco, chief economist at EY-Parthenon, wrote in a note to clients on Monday. . “This will help push back against current market pricing … Powell will emphasize that history strongly warns against premature easing.”

The central bank has raised its benchmark lending rate six times this year to curb borrowing, cool the economy and slow the recession. Historically high inflation It rose to 9.1% in summer.

Even if interest rate hikes are easy, they will be high, and economists mostly expect the U.S. economy to endure a recession next year. Powell said in November The economy still has a chance to avoid a recession, but the odds are slim: “To the extent that rates need to be held up longer, that will pave the way for a soft landing.”

In an interview broadcast Sunday on CBS, Treasury Secretary Janet Yellen — Powell’s predecessor at the Fed — “There is a risk of recession. But it is certainly not something that is necessary to reduce inflation.

See also  More than 200 people have died in the Congo floods, with many more missing

And economy So far the Fed’s aggressive rate hikes have been contained. The The job market is healthySalary are growingAmericans cost and is GDP Strong. Business is also good: companies abound beating Reporting earnings expectations and positive earnings results.

The central bank is not acting alone, and is one of nine central banks expected to make a rate announcement this week. The slow descent into the ever-narrow path between hyperinflation and recession is a global concern as central banks around the world grapple with similar economic issues.

The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the US on Thursday. Norway, Mexico, Taiwan, Colombia and the Philippines will also increase borrowing costs this week.

The Federal Reserve announces its rate hike decision at 2pm on Wednesday, followed by a press conference with the chairman. Powell at 2:30 p.m

Leave a Reply

Your email address will not be published. Required fields are marked *