Hot May inflation data put pressure on the Federal Reserve’s plan to raise interest rates to a neutral level by the end of the year, with some economists saying Fed Chairman Jerome Powell and central bank officials will Managed to send a more hawkish signal this week, showing resolve to fight inflation.
The Fed will announce its monetary decision at 2:00 a.m. Taipei time on Thursday (16th), and release the latest economic forecasts and a dot plot of interest rates. Economists believe that the Fed can send a more hawkish signal in the following three ways.
Rate hike this week
Over the past 6 weeks, Fed officials have been unanimous about raising interest rates by 2 yards (50 basis points) at the June and July meetings. Although the consumer price index (CPI) data is hot, most economists always believe that this is the most important meeting this week. There is a possible outcome until the recent call for a rate hike of 3 yards.
The Wall Street Journal (WSJ) published a report on Monday (13th), expecting Fed officials to raise interest rates by a larger-than-expected rate, or 3 yards (75 basis points). Not long after the release, economists including Goldman Sachs and JP Morgan followed suit and revised their rate hike forecasts. If the Fed does raise rates by 3 yards at this week’s meeting, it will be the largest rate hike in nearly 30 years. rate hike.
Economic Forecasts and Interest Rate Dot Plots
The last time the Fed released a dot plot of its economic and interest rate forecasts was at its March meeting, and Richard Moody, chief economist at Regions Financial, said the forecast was heavily criticized at the time because the Fed expected the economy to soften in the “softest” way possible. Landing, inflation will cool rapidly and there will be no change in unemployment.
The Fed also expects the median federal funds rate to hit 1.875% by the end of this year and 2.75% by the end of 2023, the so-called implied final rate.
However, some economists see a very different forecast for the meeting, with the Fed likely to signal that the central bank will be willing to risk slowing the pace of economic growth even if it increases the risk of a recession.
Oscar Munoz, managing director strategist at TD Securities, said: “The FOMC will send a clear signal that they intend to tighten policy this year and next by more than they expected in March. In fact, We expect the dot plot to suggest that the Fed will tighten policy further this year and next, even if this could lead to a higher recession risk.”
Deutsche Bank economists believe this week’s economic forecasts should show a less “soft” economic soft landing but no recession, estimating the Fed will raise its 2023 and 2024 unemployment rate forecasts and cut domestic Gross production (GDP) estimates.
As for inflation, Deutsche Bank forecasts the Fed’s forecast for the personal consumption expenditures price index (PCE) to be 5.6% this year, 3% next year and 2.3% in the next two years.
Ball’s view on subsequent tightening
Fed Chairman Jerome Powell said in May that the Fed would not hesitate to raise interest rates above neutral levels and enter restrictive territory. The market believes that Powell is likely to reiterate this at this week’s meeting. a commitment.
“There’s no question that Ball’s stance at this week’s meeting will sound more hawkish than at any other time this year, on the one hand he may claim that the Fed can’t hold back by increasing food or energy supplies,” said Ed Yardeni, president of Yardeni Research. Prices, in effect, he will admit, the central bank’s toolbox for fighting inflation is to raise interest rates high enough to depress demand for goods and services, even if it increases the risk of a recession.”