For weeks, the Fed has been anticipating the upcoming debate at the July FOMC meeting: raising interest rates by half a percentage point, or another three-quarters hike following last month’s surprise decision, Both vary widely by historical estimates.
Until June, consumer prices rose 9.1% from a year earlier, a 40-year high. That prompted investors to renew their bets that the Fed will be bold again — raising rates by a full percentage point, the first rate hike since the central bank’s chairman Paul Volcker in the 1980s.
Fed officials have since lowered those expectations, while economists say other major reports in recent days have priced in the urgency to raise rates as the greatest of the modern Fed era. But they also said that nothing is impossible, now or in the future.
Assuming the Fed raises rates by 75 basis points, borrowing costs will return to 2018 levels and are expected to slow economic growth for the first time in nearly three years.
Here are three of the biggest questions surrounding the Fed’s July meeting — and how they might affect your wallet.
1. How much will the Fed raise interest rates?
Investors betting on the Fed’s next move did not say on June 13 that the U.S. central bank would raise interest rates by a full percentage point, according to CME Group’s FedWatch. However, on the day of the latest inflation report a month later, inflation was at 75%. Major banks and investment firms, including economists at Nomura and Citigroup, also called for big pay rises.
Pundits say the Fed’s expectations have changed so quickly because officials have suddenly signaled over the past month that they are ready to switch.
“You have to be vigilant right now, you can’t take anything off the table,” said Joseph Mayans, head of U.S. economics at Experian. “That’s part of the Fed’s message that it’s more focused on inflation, which is its main problem.”
But this meeting had one peculiarity from the last: Officials still scheduled public appearances where they could give the public a preview of their preferences before formally discussing how to handle rates.
“They don’t want to overstate the rate hikes. A 75 basis point hike is huge,” Fed Governor Christopher Waller, who has a permanent vote on the Federal Open Market Committee, said in remarks Friday two days after the report was released. “Don’t say, ‘Because you haven’t turned 100, you haven’t done your job well.'”
In other comments, Atlanta Fed President Rafael Bostic said raising rates by more than three-quarters could add to concerns.
Market participants took notice. While only about a third said a full one-point adjustment was still possible, the majority (or 67%) of investors backing fed funds futures said policymakers could make another 75 basis points.
In a welcome sign for Fed officials, consumer inflation expectations tracked by the University of Michigan also fell slightly this month, possibly easing some of the pressure to do more. This helps officials look at the big picture, rather than just one step.
2. As hiring slows, what’s next for the job market?
A bright spot for consumers during decades of high inflation has been the continued strength of the labor market. Employers reported more than 11 million job openings for the sixth straight month, the unemployment rate was at a near half-century low and jobless claims held steady — albeit rising. Over the past year, job gains have averaged more than 500,000 a month.
But the job market looks set to slow. Major companies from Apple to Google have slowed hiring plans; some, like Shopify, are canceling internships. Combined with record low consumer sentiment, job security appears to be changing.
Economists expect job growth to slow sharply over the next 12 months, averaging 193,000, while the unemployment rate could rise to 4.2% from 3.6% among the country’s top economists, according to the Bankrate survey.
Powell said the job market is “very tight,” noting that there are two open positions for every unemployed person. Meanwhile, the job fill rate is at an all-time low, according to the Labor Department. That could mean a slowdown is exactly what the Fed wants — especially given how a hiring disadvantage differs from layoffs.
However, experts point out that the job market is a lagging indicator and that a booming job market may just be part of the Fed’s high tolerance.
“That’s how things started,” McBride said, referring to the deteriorating job market. “Having unemployment as a barometer of our recession is like looking in the rearview mirror while driving down the street. The labor market will eventually become the victim of a severe slowdown or recession, and the process is just beginning.”
3. Is a recession inevitable at this point?
Fed officials have a clear game plan, and it’s more important than raising rates at every meeting. Rather, it’s about getting the Fed’s benchmark interest rate to a point where it starts to slow economic growth, a threshold for the U.S. economy, with official estimates that the so-called “neutral rate” could be above 2.5%. ”
“It’s a race beyond neutrality,” McBride said.
But Fed officials questioned how far rates would need to rise above neutral before inflation fell immediately, especially given that higher policy rates would not help with supply shocks. Inflation was more than three times the Fed’s June neutral forecast, suggesting the neutral rate could be much higher.
But the more you hit the brakes on the economy, the more likely you are to completely destroy growth — and trigger a recession. On the other hand, poor action could damage the Fed’s credibility and embed inflation into the financial system.
“A recession could be the price we have to pay to keep inflation in check,” McBride said. “If the Fed backs down and doesn’t follow through, I’d be more concerned because that would leave us with the best of both worlds: inflation is too high and the economy is running well below potential.”
Where the Fed sits has major implications for consumers, including corporate hiring plans and the stock market. But the path depends on where inflation ends, which remains a big question mark as prices show no signs of slowing.
As the Fed takes a more aggressive stance, economists in Bankrate’s second-quarter survey of economic indicators see a 52% chance of a recession in the next 12 to 18 months.
“The Fed itself doesn’t know when it’s going to stop,” said Michael Farr, founder and CEO of Farr, Miller and Washington, D.C. Resident investment advisory firm. “For me, peak inflation is like saying, ‘This is as hot as a bushfire.’ But if I have a house on the next hill, that doesn’t change my plans. They really want the wildfires out, in They will continue to raise rates until then, the market will continue to be volatile and the risks are high.”
Top site ,.. amazaing post ! Just keep the work on !