2023-06-14 02:16:10
“Inflation rates remain elevated but the moderate slowdown gives the Fed room to suspend rate hikes,” said Kathy Bostjancic, chief economist for Nationwide Insurance Company.
The meeting of the Fed’s monetary policy committee (FOMC) began Tuesday morning, two hours following the publication of the latest inflation figures.
And that might weigh heavily in the balance, because consumer prices slowed down their vertiginous escalation sharply in May, to 4.0% over one year once morest another 4.9% the previous month, according to the CPI index, i.e. the lowest level since March 2021.
Inflation is now half as high as in June 2022, when the peak of 9.1% was reached.
This remains well above the 2.0% targeted by the Fed, maneuvering to extinguish this surge in prices, but the institution is beginning to see its objective.
After ten increases in a row, of five percentage points in total – which brought its main key rate to the range of 5.00 to 5.25% – several of its officials were in favor of a break.
This “would allow us to observe more data before making decisions on the magnitude” of the increases still necessary, explained in particular Philip Jefferson, one of the governors of the Fed, and soon vice-president if the Senate confirms his appointment. .
And also to avoid weighing too much on consumption and investment, and therefore on economic activity. Above all, to avoid a recession.
“Open Door”
The bulk of market participants now believe the Fed will pause, according to CME Group’s assessment.
For consumers, the good news would be twofold: prices that rise less sharply and more affordable bank loans.
“However, if the economic data continues to surprise on the upside and inflation remains strong, the door is open for a further rate hike in the coming months – as early as July” at the next meeting, warns Kathy nevertheless. Bostjancic.
The Fed favors another measure of inflation, the PCE index whose data for May will be published at the end of June and which started to rise once more in April, to 4.4% over one year.
On the labor market, labor shortages persist although the situation is improving.
Job creations in May were much higher than forecast, but the unemployment rate rose more than expected, to 3.7%. And weekly jobless claims were in early June at their highest since October 2021.
Inflation, labor market data and credit conditions “will determine whether the FOMC is done raising rates or whether further tightening is needed,” said Rubeela Farooqi, chief economist for HFE.
However, it anticipates that “rates will be maintained at the current level, at least until the end of the year”.
Fed officials will also update their March forecasts for gross domestic product (GDP) growth, unemployment and inflation. And they will say how far they expect to drive rates up.
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