All eyes are on the US capital, specifically the headquarters of the Federal Reserve (FED), where its Federal Open Market Committee issues its decision on interest rates.
The FOMC is widely expected to keep the benchmark interest rate at a 22-year high, giving the central bank more time to judge progress in pushing inflation back to its 2 percent target.
At the end of its two-day policy meeting on Wednesday, the Federal Reserve is set to release a new set of economic forecasts that are likely to reflect stronger economic growth and a slight decline in unemployment this year, compared to previous estimates. New economic forecasts for officials are likely to show another rate increase this year. There seems to be a consensus among Fed officials that keeping interest rates steady this month is the right move — but some have said the Fed could raise rates again after September.
Even officials who worried about containing inflation have become worried about monetary policy that has become too tight — a development that will complicate future decisions and make the Fed’s next meeting to set interest rates on Oct. 31 interesting.
Investors will look for evidence that the Federal Reserve has raised interest rates, but Federal Reserve Chairman Jerome Powell is likely to assert in his post-meeting press conference that inflation remains unacceptably high. That would leave the door open for another rate hike, which could come when the next meeting closes, on Nov. 1.
Financial markets are currently seeing a 69 percent chance that the Federal Reserve will continue to pause interest rate hikes in November.
But why is the Federal Reserve likely to stop raising rates?
Inflation and the labor market have slowed steadily in the past year, giving the Federal Reserve enough room to keep interest rates steady and wait for more data.
Despite the ongoing volatility in energy markets, inflation is also expected to continue to slow in the coming months, mostly due to lower car prices and rents. Taken together, these factors give officials sufficient reassurance that they can pause interest rate hikes without risking a resurgence of rates.
The last time central bank officials decided to keep interest rates steady was in June, as uncertainty mounted over how restrictive the spring banking crisis would restrict lending. When it became clear that the economy was unaffected by the turmoil, the Federal Reserve raised interest rates again in July.
There is also an argument that the central bank has already raised interest rates high enough to ultimately constrain the economy and bring inflation down to the Federal Reserve’s stated target of 2 percent.
John Williams, president of the New York Federal Reserve, told Bloomberg earlier this month: “We have brought monetary policy to a very good place.”
But although the Fed is reassured by the steady slowdown in inflation — and expectations — the central bank still faces a number of uncertainties on the horizon.
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