The fed rate hike is expected as a part to curb inflation. Federal Reserve is expected to raise interest rates by a quarter of a percentage point on Wednesday, marking the 11th hike in the U.S. central bank’s past 12 policy meetings and possibly a last move in its aggressive battle to tame inflation.
Expected Fed rate hike
The Fed rate hike, anticipated by investors with nearly a 100% probability, would raise the benchmark overnight interest rate to the 5.25% to 5.50% range. This Federal Reserve interest rates rise would bring it to roughly the highest level since the approach to the 2007 to 2009 financial crisis and recession.
There’s little sense a similar collapse is on the horizon. Far from it, the economy is proving more resilient to Fed rate hike of interest rates than expected, with ongoing growth and an unemployment rate that is currently pinned at a low 3.6%.
In assessing where policy may move next, in fact, the Fed will be balancing whether the economy remains too strong to return a still elevated rate of inflation to the central bank’s 2% target against evidence that a process of “disinflation” may be underway that is likely to continue even without any further rate increases.
Fed interest rate inflation
After a rapid series of Fed rate hikes over the last year, with the central bank moving in unusually large three-quarters-of-a-percentage-point steps at one point, policymakers say they are now making meeting-by-meeting judgments based on incoming data, an approach meant to keep their options open and one likely to be emphasized by Fed Chair Jerome Powell in a press conference shortly after the 2 p.m. EDT (1800 GMT) release of the policy statement.
A key question, said Steve Englander, head of G10 FX research and North America macro strategy at Standard Chartered, is whether the Fed “puts more emphasis on weaker-than-expected inflation or stronger-than-expected activity in determining policy” moving forward.
Is inflation nearing the end?
The Fed will not update quarterly economic and interest rate projections at this week’s meeting, though policymakers will have a chance to discuss quarterly bank survey data that has taken on heightened importance since a string of regional bank collapses earlier this year.
Policymakers’ projections in June showed the Fed rate hike is likely nearing the end of its hiking cycle, with a majority of them seeing the need for only one further quarter-percentage-point increase beyond the expected hike on Wednesday.
Federal Reserve raise interest rate
Data since June, if anything, has lowered expectations that further Fed rate hike in borrowing costs will be needed, with headline U.S. federal reserve inflation data coming in weaker than expected, and information about producer prices and other aspects of the economy suggesting further moderation is developing. The Conference Board reported U.S. Federal Reserve inflation of 12-month expectations sank to the lowest level since November 2020.
New data on the Fed interest rate inflation preferred measure, the personal consumption expenditures price index, will be released on Friday.
Feds working on curbing inflation
A poll showed economists expect the Fed interest rate inflation measure, stripped of volatile food and energy prices, to have increased at a 4.2% annual rate in June, which would be the lowest since September 2021.
Officials including Powell have said they will not shift gears on policy until progress on U.S. Federal Reserve inflation is sustained over several months and they are convinced the pace of price increases will return to 2%.
The Fed will have a larger-than-usual amount of data to assess before its next meeting on Sep 19-20. The longer span allows a full two months of information on jobs and inflation to accumulate, and in this case will also provide the first two of three reports on economic growth in the second quarter.
