What to Look for at the July Meeting of the Fed - Liberty

Friday, July 28, 2023

What to Look for at the July Meeting of the Fed

 After halting in June, the Federal Reserve is prepared to increase interest rates. Don't anticipate firm pledges, but what happens afterward is critical.

The Federal Reserve chair, Jerome H. Powell, has been cautious to convey two key messages so far: rates may need to go further and they will almost probably stay high for a while. Kirkpatrick, T.J.

Liberty-CNN, At its meeting on Wednesday, the Federal Reserve is generally anticipated to increase interest rates, and economists will be on the lookout for cues as to what policymakers anticipate will come next and how they view the effectiveness of the central bank's efforts to combat high inflation.

At 2:00 p.m., Fed officials will announce their choice, followed by a press conference by Chair Jerome H. Powell.

This week, policymakers are anticipated to hike rates for the eleventh time since they started raising borrowing prices in March 2022, to a range of 5.25 to 5.5 percent. Last year, officials quickly increased rates, but they have been gradually decreasing their campaign this year. After 10 straight adjustments, they even skipped a change in June.

What remains to be seen is when they will quit.

This week, central bankers are unlikely to make a firm commitment. They anticipate one more rate adjustment this year, to a range of 5.5 to 5.75 percent, but officials do not yet need to state when—or even if—that adjustment will take place. Before announcing their next rate decision and a new set of quarterly economic estimates on Sept. 20, Fed policymakers will have plenty of time and data to analyze. Nevertheless, a few significant events on Wednesday will be closely watched by markets and Fed observers in general.

The Fed's announcement could not much alter.

Numerous analysts anticipate that the Fed will keep this meeting's post-meeting statement, which they use to indicate their stance on interest rates, mostly unaltered.

According to a Fed statement from last month, officials would take into account how much they had already raised interest rates, how quickly that was slowing the economy, and how well the financial system and economic data were holding up "in determining the extent of additional policy firming that may be appropriate."

Since the Fed's meeting in June, both the unemployment rate and the inflation rate have moderated significantly, which has led investors and some analysts to downgrade the likelihood of another rate rise this year. Officials from the Fed, though, are unlikely to give the impression that they are giving up on the prospect of hiking interest rates further.

According to Yelena Shulyatyeva of BNP Paribas, "They don't want markets to get ahead of themselves and think it's over." "July and done is what we predict, but if inflation picks back up, they'll keep going,"

Tone will be the main focus of the news conference.

The news conference with Mr. Powell will be the center of attention if the statement is as unoriginal as anticipated. To yet, the Fed chair has taken care to convey two key messages: Rates may need to increase even more, and they will most likely remain high for a while.

On June 28, Mr. Powell stated that although the policy is restrictive, it may not be restrictive enough and has not been stringent long enough.

After the Consumer Price Index data for June came in lower than anticipated and showed a promising deceleration in a few carefully monitored service categories, the Fed may be feeling a little bit better about inflation. Compared to its peak last summer of 9.1 percent, the total inflation rate was only 3 percent. The Personal Consumption Expenditures Price Index, a different but related inflation indicator, is scheduled for release on Friday with the Federal Reserve aiming for a 2 percent inflation rate.

But the data in that positive news only spans one month.

Wall Street experts predict that inflation will continue to decline, but there are plenty of wild cards: After an Exxon Mobil refinery broke down this week, gas prices increased at the pump, and the height of storm season is still to come. Following Russia's withdrawal from a deal ensuring the safe passage of ships transporting grains over the Black Sea, market-based wheat prices have increased this month. This might ultimately trickle through to increase consumer expenses.

These indicate that shocks might still raise prices even if they ultimately turn out to be blips. Big shocks aren't the only thing to be concerned about, though; price hikes might just be obstinate.

Up until now, the slowing in inflation has been mostly attributed to supply networks returning to health and to significantly pandemic-affected industries returning to normal. Although employment gains are still greater than they were before the epidemic and consumer spending is still gaining speed, the economy is weakening, which may eventually result in a general reduction in price rises.

Mr. Powell has been speaking carefully thus far because of this.

At a gathering in Spain late last month, Mr. Powell said, "We've all seen inflation be — over and over again — shown to be more persistent and stronger than we expected."

Moving ahead, incoming data are crucial.

For Fed policymakers, the key question is whether they have taken sufficient action to be confident that the economy will slow and inflation will completely return to its 2 percent target. The solution will be sought after in a variety of data releases over the upcoming weeks.

Friday will provide a new measurement of the Employment Cost Index, a salary indicator that policymakers regularly monitor. That quarterly metric has yet to indicate a consistent decline since it is less susceptible to fluctuations caused by changes in the labor market's makeup than monthly wage data is.

Officials often applaud swift pay increases, but they think it will be difficult to properly restrain inflation if salaries continue to rise at the current rate. Companies that pay more are likely to attempt to raise their prices to preserve their profit margins. The two upcoming employment reports for July and August as well as the two more inflation data scheduled for publication before the next meeting will also be eagerly watched by policymakers.

The Fed is unlikely to proclaim triumph.

On Wednesday, is there anything you won't hear? The Fed proclaims success in its effort to reduce inflation. It is still far too early to say for sure, but economists believe that the central bank's chances of slowing the economy without triggering a recession have increased.

Some have cautioned that the Fed may still err on the side of excessive action if inflation looks like it will continue to be too high to prevent it from becoming more permanent.

Former vice chair of the Fed and Princeton economist Alan Blinder has maintained that soft landings, or at least "soft-ish" landings, in which recessions are moderate, are more often than generally thought.

Recent events, according to Mr. Blinder, support his belief that a gentle landing is conceivable; but, he added that such a result is far from inevitable. "I'm happy as a clam," he remarked. He estimates there is a 40% chance of a recession. Additionally, he is concerned that the Fed may continue to hike rates this autumn despite the slowing in inflation.