What do you expect from the Fed meeting?

Washington, DC
CNN
–

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

Although this increase will be less than the three-quarters-point increases announced at the past four Fed meetings, it’s nothing to scoff at.

It’s still about twice the Fed’s usual quarter-point increase, and a significant increase that has the potential to cause economic pain to millions of American businesses and households by making it more expensive to borrow for homes, cars, and other loans.

The Fed’s expected action will raise the overnight rate that banks charge each other to borrow to a range of 4.25% to 4.5%, the highest rate since 2007.

Federal Reserve Chairman Jerome Powell Confirmed last month Less rate hikes can be expected, saying, “The time for adjusting the pace of interest rate increases may come as soon as we meet in December.”

The most recent inflation reading, as measured by the consumer price index, It showed that year-over-year price increases slowed to 7.1% in November. But inflation is unlikely to slow significantly anytime soon, in part because wages remain under pressure amid a worker shortage. However, Wall Street seems to believe that the Fed will eventually have to move away from, or even reverse, its system of raising interest rates. Traders are largely pricing in a rate cut in the second half of 2023.

The Federal Reserve will conclude the system of raising interest rates by the second quarter of next year, JPMorgan analysts predict On a recent note. “With inflation still fading and monetary policy likely to be suspended, the Fed is likely to end its tightening cycle early in the new year and inflation may begin to moderate before the end of 2023,” they wrote. Analysts expect two quarter-point increases in the first half of 2023.

But the average period between peak interest rates and the first cuts by the Fed is 11 months, which could mean that even if the central bank actively stops raising interest rates, they could remain high until 2024.

Investors will closely read the Fed’s economic outlook, the Summary of Economic Outlook, which is also due for release on Wednesday. And they’ll watch Powell’s press conferences for clues as to what’s to come — though they may end up sorely disappointed.

“We expect Fed Chair Powell to insist on the need to maintain policy at a constrained level for some time to bring inflation toward the 2% target,” Gregory Daco, chief economist at EY-Parthenon, wrote in a note to clients on Monday. . “This will undo current market rates…Powell will confirm that history is very wary of premature easing.”

The Fed has raised its benchmark lending rate six times this year in an effort to discourage borrowing, calm the economy, and lower Historically high inflation which peaked at 9.1% over the summer.

Even if interest rate hikes ease, they will remain high, and economists largely expect the US economy to pick up the recession next year. Powell said in November There is still a chance the economy will avoid a recession but the odds are slim, noting: “To the extent we need to keep rates higher for longer, that will narrow the path for a soft landing.”

In an interview that aired on CBS Sunday, Treasury Secretary Janet Yellen — Powell’s predecessor at the Federal Reserve — There is a risk of a recession, he said. But it is certainly not, in my opinion, a necessary thing to bring down inflation.”

And the Economy It has so far withstood sharp interest rate increases by the Fed. The The job market is healthywages they growthe Americans spending The gross domestic product is strong. Business is also good: largely corporate beating Revenue forecasts and reporting positive earnings results.

The Fed is not acting alone, it is just one of nine central banks expected to announce interest rates this week. Landing softly on the ever-narrowing path between high inflation and stagnation is a global concern as central banks around the world grapple with similar economic woes.

The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the moves of the United States by half a point of their own on Thursday. Norway, Mexico, Taiwan, Colombia and the Philippines are likely to increase borrowing costs this week.

The Federal Reserve (US Central Bank) announced its decision to raise interest rates on Wednesday at 2 pm, followed by a press conference with the President Powell at 2:30 p.m