The Federal Reserve on Tuesday said it expects to keep raising interest rates in a bid to stem the fastest inflation in decades, confronting investors who have become more optimistic about the prospects for interest rate movements. .
After last week’s Fed meeting, stocks rose as some investors celebrated what they interpreted as a pivot. Fed Chairman Jerome H. Powell said the central bank would start making interest rate decisions at each meeting. It shows that the rate action may slow down soon.
But then a chorus of Fed officials made it clear they weren’t likely to shy away from rate hikes just yet.
San Francisco Federal Reserve Bank Governor Mary C. Daly said in a LinkedIn interview on Tuesday that the Federal Reserve is “far from” raising rates. Chicago Federal Reserve Bank President Charles L. Evans told reporters he supports a rate hike of half a percentage point to three-fourths of a percentage point in September.
Minneapolis Federal Reserve Bank Governor Neil Kashkari said in an interview late last week that he did not understand why the market was receding expectations of a rate hike by the Fed.
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These comments suggest that the central bank remains steadfast in its plans to raise borrowing costs, slow the economy and keep inflation under control. And they were notable given that three senior officials have historically supported low interest rates. Their continued commitment to raising borrowing costs shows that the Fed is united in its efforts to contain inflation.
The Federal Reserve’s work is “mostly not done,” said Daly, adding: error. “
Prices of stocks and major government bonds fell on Tuesday, in part as markets reacted to the Fed’s comments.
The Fed’s latest forecast, released in June, sees officials raise interest rates to 3.4% By the end of the year, it will be up 1% from its current range of 2.25-2.5%. Evans suggested on Tuesday that he still thinks that path is reasonable.
investors are generally The Fed will stick to the course outlined in June. But after the Fed’s meeting last week, they began to up the odds on the possibility of the central bank raising rates less than expected. It began suggesting a slight increase in the likelihood of a rate cut, but this was pushed back by officials.
“It’s a puzzle to me. I don’t know where it is in the data,” said Daly. “The prospect that I think is most likely is to actually raise interest rates and then keep them there for some time.”
Officials are expected to release the next set of rate forecasts at their September meeting.
Both Kashkari and Evans have indicated support for a 0.5 percentage point rate hike in September.
Evans told reporters on Tuesday that in September, “50 is a reasonable rating, but 75 would be fine.”
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Officials are trying to keep the economy in check enough to slow down the labor market, curb wage growth, and reduce demand and keep prices down. They hope they can get through it without sending the economy into a complete recession.
However, the central bank is well aware that prices have risen sharply for more than a year after gaining 9.1% in the year to June. Consumers may begin to expect inflation to accelerate and change their behavior so that price increases are more likely to last longer.
There are signs the economy is slowing as inflation weighs heavily on American wallets, data released by the Federal Reserve Bank of New York on Tuesday showed that. They were taking on more debt in an attempt to cover rising prices. However, it is not yet clear whether the recession has started.
“I really wanted to see a pullback in activity,” Cleveland Federal Reserve Governor Loretta J. Mester said in an interview with The Washington Post Live on Tuesday. “Certainly not slowing enough to (a) call it a recession, and (b) confirm a moderation in demand,” is carried over to moderation in price gains.
Mester, like his colleagues, suggested that interest rates still had room to rise and he expected a clear slowdown in inflation. She said inflation could fall in July as oil prices fell.
“Inflation is so high that you don’t want to immediately conclude that inflation is on a downward trend,” she said. She “want to look broadly across many inflation indicators, not just one, not just two,” she said.