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Federal Reserve officials signaled they would resume raising rates amid growing consensus that more tightening is needed to eradicate high inflation in the world’s largest economy.
“Almost all” officials who attended said the Fed’s “further increase” in the benchmark rate was “appropriate,” according to the minutes of the Federal Open Market Committee meeting in June.
Moreover, nearly a year and a half after the US central bank embarked on an aggressive rate hike cycle to contain price pressures, a “tightening” labor market and “upside risks” to inflation still shape the outlook. It added that it was a “significant factor” to
Some Fed officials favored a 25-basis-point rate hike in June rather than halting further tightening, which the committee ultimately endorsed, according to the minutes. But most Fed officials noted “uncertainty” about the outlook and said additional information about the economy would be “valuable.”
On the economic outlook, Fed officials said they expected growth to be “subdued” for the remainder of the year, although “banking stress” had “reduced” since the beginning of the year. Fed staff briefing policymakers at their June meeting said the traditional pattern of a “moderate recession” beginning in the second half of the year followed by a “gradual recovery” would follow, the report said. I kept my expectations.
The June meeting was the first reprieve in the Fed’s campaign to stamp out stubborn inflation, which rose to its highest level in decades last year. After raising the base rate at 10 consecutive meetings, sometimes in large intervals of three-quarters or half a point, central bank officials instead target a rate of 5% to 5.25%. We chose to keep it in the range.
Fed Chairman Jay Powell paused, saying the turmoil at regional banks earlier this year had hurt jobs and growth, and that the effects of previous rate hikes were still needed for the economy to fully recover. justified.
But more rate hikes this year are widely expected, with most officials expecting the base rate to end up in the range of 5.5% to 5.75%. That equates to another two-quarter point hike, with the first rate hike likely at the next Fed meeting later this month.
Speaking at a forum hosted by the European Central Bank last week, Powell said, “I’m not going to take any action in the back-to-back meetings off the agenda.”
The potential for further interest rate hikes stems from some price pressures, particularly in the service sector, that are surprisingly persistent. The US labor market has also remained very strong, helping to drive consumer spending. By raising borrowing costs, the Fed aims to curb demand across the economy.
As officials maintain a period of below-trend growth, job losses will be needed to reach the 2% average inflation target. With the unemployment rate peaking at 4.5%, policymakers largely expect economic growth of 1% this year and 1.1% next year, according to estimates released in June. The unemployment rate in May was 3.7%.
Fed officials expect no rate cuts until 2024, given that “core” inflation, which excludes volatile food and energy prices, will remain well above the central bank’s long-standing target. .
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