It may be the first time in 18 months that the Federal Reserve has chosen not to raise interest rates in 18 months during its upcoming two-day meeting on June 13-14.
However, this is not yet settled. Some members of the Federal Open Market Committee, which approves monetary policy, do not favor a moratorium on interest rate hikes. This means that the issue of skipping or raising interest rates is not far from the table, especially since the meeting coincides with the release of a new consumer price index report on the first day of the Federal Reserve’s meeting, on Tuesday.
As the Federal Reserve begins its meeting in the morning, it will receive CPI inflation data for May. Expectations indicate that headline inflation will continue to slow. But core inflation — which the Federal Reserve monitors closely in its decision-making — could still be well above its 2 percent target.
Inflation posted its first drop in two years in April, falling below 5 percent. Core inflation was 5.5 percent in April versus 5.6 percent last year.
Markets await Federal Reserve Chairman Jerome Powell’s press conference on Wednesday after the two-day meeting.
Powell said last month early last month that Fed officials believe they have done enough to regain control of inflation and are ready for now to stop raising rates.
Earlier this month, a number of Federal Reserve officials made statements expressing concern that core inflation remains high despite falling headline inflation. Thus, this explains that the Fed still tends to increase interest rates further if necessary. But at least for the June meeting, it may adopt a pause to monitor the effects of past price movements on the overall economic situation.
But assuming the decision not to raise interest rates, the key question is whether the Fed sees the current situation as a pause with the possibility of further hikes, or perhaps what it has reached is the highest interest rate cap.
So far, the messages from Fed leaders seem more hawkish. This means that there is still frustration that inflation continues to rise and that further rate hikes are possible, if not likely.
Another indicator, in addition to inflation, is included in the Fed’s calculations when making its interest rate decisions. Labor market data, which serves as the main monthly indicator measuring economic activity, recently highlighted rising job growth in the United States.
In contrast, weekly U.S. jobless benefits data rose, which provides further signals about the Fed’s next steps.
The data released last week, was this time in line with the Fed’s vision of a weak labor market and greater unemployment to achieve a soft recession and then lower inflation.
US Treasury Secretary Janet Yellen Alt said after the release of the unemployment market index last week that inflation could calm while maintaining a strong labor market and an unemployment rate in the 4 percent range, slightly up from the 3.7 percent reading for May, stressing that the top priority for the time being is to curb high inflation.
She also said the U.S. economy has slowed somewhat, easing pressures within the labor market, “but we still have a very strong labor market and wage gains are significant.”
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