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Fed would end the streak of interest rate hikes in the US.

Powell

Most economists expect next week the Federal Reserve of the United States makes the first pause in 15 months in its interest rate increases and maintain monetary policy through December, even as you face a resilient US economy and persistent inflation.

(See: Despite the fact that inflation subsides, the Fed raised its rate again)

He Federal Open Market Committee (FOMC) will keep the rates unchanged at its meeting on June 13 and 14 in the range of 5% to 5.25%although in July officials will face a tougher decision about what to do, according to economists polled by Bloomberg.

In May, the FOMC Chairman, Jerome Powellhinted at a suspension of the toughening campaign, suggesting that he was inclined to wait to assess the lagged effects of previous measures and the impact of recent bank failures on the availability of credit.

The FOMC median projection in its quarterly summary of economic projections (SEP) is expected to “dotplot”or dot plot, show the benchmark rate at 5.1% by the end of 2023identical to what economists expect the real rate to be and in line with the March projection.

(See: Fed Chairman Aims to Restore Price Stability)

For their part, the markets anticipate an increase of a quarter of a point in July and a possible cut of the same magnitude in December. The survey of 46 economists was carried out from June 2 to 7.

“We expect a hawkish pause at the June FOMC meeting, where the FOMC would choose not to raise, but would signal the expectation of further increases via the SEP”said Nomura Securities economists Aichi Amemiya, Jeremy Schwartz and Jacob Meyer, in a response to the survey.

Jerome Powell

AFP

“We expect May to end up representing the last rise in this cycle, as easing inflationary pressures, slowing labor conditions, and headwinds from reduced lending will lead the FOMC not to decide further to resume trading.” uploads”they added.

What Bloomberg Economics Says “Most likely, the Fed will refrain from raising rates at its June 13-14 meeting. This is because the most influential FOMC participants, most notably, Fed Chairman Jerome Powell, believe that earlier tightening, which will hit the economy with a delay, will induce further weakening in the coming months. But Powell could face a FOMC scramble.”. Anna Wong, Stuart Paul, Eliza Winger and Jonathan Church (economists).

(See: Powell Rocks Markets: Fed Poised for Another Rate Hike)

The credit crunch following the failures of Silicon Valley Bank and Signature Bank in March has led Fed leaders to emphasize uncertainty about the outlook for the economy and flexibility about how they will respond.

Even so, data so far has surprised on the upside, and authorities will upgrade their projections for the economy by 2023 according to economists.

They are likely to raise growth prospects to 0.6% this year, from 0.4% in March, and cut the projected year-end unemployment rate to 4.2%, from 4.5%. projected in March. The headline inflation outlook is likely to remain unchanged at around 3.3% for 2023and 3.7% excluding food and energy, that is, 0.1 percentage points more than in March.

The Federal Reserve’s target is 2% inflation as measured by the Personal Consumption Expenditures Price Indexwhich rose 4.4% in April and has been higher and more persistent than expected for much of the last year.

Dollar

Dollar

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Economists are split on whether the Fed has capped its rate, with about a third expecting a quarter-point hike in July.

Several of the Fed officials More hawkish have urged rate hikes, including St. Louis Fed President James Bullard and Cleveland incumbent Loretta Mester, with some raising the possibility of skipping a meeting and raising rates over the summer.

(See: The cities where millionaires buy more properties)

“Faced with stronger-than-expected data, FOMC chiefs have indicated they are leaning towards skipping the June meeting, but that doesn’t stop them from raising rates in July.”said Kathy Bostjancic, chief economist at Nationwide Life Insurance Co.

“The Fed’s guidelines have become confusing and are confusing the markets”. Given that inflation has been slow to return to target, it is likely that Fed leaders project rates will stay high through 2024ending the year at around 4.4%.

Even when the Fed hits a cap rate, almost all economists agree that the central bank will continue to shrink its balance sheet as part of its ongoing program to normalize its assets. Two-thirds think the FOMC will continue to dump assets even after it starts cutting interest rates, which is expected to happen in the first quarter of 2024.

Although Powell has said he sees a narrow path to a soft landing., Fed staff have forecast a US recession and 63% of economists see it as likely within the next 12 months. Most of the rest anticipate a hard landing with a period of contraction or zero growth that falls short of a formally declared recession.

Among those who anticipate a recession, the vast majority expect it to start in the third or fourth quarter. Almost 40% of economists expect a dissent at the meeting, which would be a change in the voting mostly unified of the last few years of the Powell Fed.

(See: Janet Yellen defends the ‘soundness’ of US banks.)

Minneapolis Fed President Neel Kashkari, Dallas Fed President Lorie Logan and Governor Christopher Waller, all considered hard-liners who push for rate hikes, are the most likely to oppose a pause. .

Bloomberg

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Written by Editor TLN

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