July 24 () –
The Federal Reserve of the United States (Fed) will raise interest rates at this week’s meeting, but they disagree on whether the next one will be the last rise or the issuing institution will maintain its hard line in September, according to analysts reported by Europa Press
ALLIANZ GLOBAL INVESTORS
From Allianz Global Investors, its ‘senior’ economist and director of Global Economy and Statistics, Greg Meier, expects the Fed to announce a “moderate” rate hike in July that “could” stop in September.
“Based on fed funds futures, this could be the last hike for the cycle, with a slight easing trend in early 2024,” Meier said.
Going forward, the risks from the Fed’s stimulus could remain latent. “The impact of rate hikes, which have been the fastest in about 40 years, may take another 6-12 months to appreciate,” Meier said, warning that their results have also manifested in the form of financial instability.
To this end, the economist believes that taking into account the current “substantial” reduction in inflation, the scenario of a “soft landing” in the United States becomes “more likely.”
On its side, the company specializing in international payments and collections and currency exchange Ebury expects the Federal Reserve to carry out its last rate hike of the cycle, although it is “unlikely” that the president of the institution, Jerome Powell, will completely close the door to additional increases.
However, says Ebury, the market is not very sold on the Fed’s rhetoric, and investors are “particularly skeptical” of the possibility of further tightening after the sharp drop in the CPI in June. In this way, Ebury is of the opinion that there is “sufficient evidence” to limit the need for further increases beyond the next appointment, so they believe that Wednesday’s rate hike will be the last.
MFS INVESTMENT MANAGEMENT
For Erik Weisman, chief economist and portfolio manager at MFS Investment Management, the forecast for the July meeting is for the Fed to raise interest rates by 25 basis points. This increase is “practically assumed” by the markets and Weisman “very much doubts” that the central bank will go against what the market already expects. “I doubt whether the Fed will raise rates further as the decision will be highly data driven,” he said.
However, “the path to a soft landing seems to have improved”, both due to weak inflation and the slowdown in the labor market. Weisman points out that much of the lagging monetary tightening is yet to be seen, and even if the Fed ends its hike cycle this week, the effects of the past 16 months of tightening could still push the US into recession.
“At the press conference, I expect Powell to stick to the narrative about the importance of containing inflation as the Fed needs to see more results to be sure they are really winning the battle.”
“Since Powell will not want financial conditions to be eased, which would be counterproductive to containing inflation, I think Powell cannot afford to sound pessimistic,” he added.
Christian Scherrmann, economist for the investment capital firm DWS, estimates a rise of 25 basis points at the next meeting in July as “very likely”.
While he views progress on disinflation as looking “promising,” policymakers still want to see some more “good” inflation data, as well as signs that labor market imbalances are easing. Only then would the Fed appear to lean towards “wait and see, rely on data, go higher for longer.”
Therefore, Scherrmann does not expect the Fed to change its hawkish stance at the next meeting. “His most recent rallies, and given his forecasts, the ‘preferred’ trend among US central bankers remains to err on the hawkish side rather than risk repeating past mistakes of declaring victory too quickly,” he said, referring to the inflation crisis of the 1970s.