Investing.com - The Federal Reserve, in its forthcoming Wednesday meeting, is set to provide clarity on their June gathering that left analysts and investors on Wall Street bewildered.
In an unexpected move that spanned over a year and three months, the Federal Open Market Committee halted its sequence of ten successive interest rate hikes. This decision was taken despite inflation decelerating at a slower pace than anticipated. Concurrently, policymakers have predicted two further increases this year - surpassing expectations and leaving market players puzzled.
Kathy Bostjancic, the chief economist at Nationwide Life Insurance Co., expressed her confusion regarding the central bank and Chair Jerome Powell's inconsistent message. She conjectured it might be due to a discord between committee members with differing views on monetary policy. The minutes from the upcoming meeting could offer some illumination but may also echo Powell’s elusive explanation.
Powell has previously stated that Fed officials needed more time to evaluate economic data considering past aggressive rate increments as well as credit tightening resulting from March’s bank failures.
Reiterating his stance last week, Powell mentioned how most committee members anticipate two or more hikes without dismissing potential consecutive meetings' hikes possibility. According to Derek Tang, an economist with LH Meyer/Monetary Policy Analytics, these statements might bolster market predictions for a July hike.
Tang commented that while not guaranteed; a July increase seems likely since failure to do so would make it challenging for them to assert continued hiking cycle viability if they don't hike twice consecutively. He added though that “the minutes will maintain maximum flexibility – suggesting higher peak rates but diverse opinions about appropriate timing.”
Bloomberg Economics’ Chief US Economist Stuart Paul anticipates hawkish-leaning communications by the Fed due to persistent upside risks related to inflation ahead of the late-July meet-up.
Key economic reports including the June employment report (due Friday) and consumer price readings for June (scheduled for 12th July) will reach Fed before their late-July assembly.
According to recent Commerce Department figures released last Friday; May witnessed the slowest annual growth pace in personal consumption expenditures price index (Fed’s official target measure), in over two years.
However, core prices excluding food & energy - which rose 4.6% compared to the broader gauge’s 3.8% rise from May 2022 – are garnering more attention among policymakers.
Rubeela Farooqi - High-Frequency Economics’ Chief US Economist expressed concern over stubborn inflation amidst the economy consistently exceeding forecasts which could keep FOMC biased towards being hawkish longer-term.
Assessment of lending conditions following bank failures will serve as another crucial factor influencing the committee's future decisions according to Jonathan Millar – Senior Economist at Barclays (LON:BARC) Capital Inc., New York City who said if lending conditions aren’t constricting as assumed then there could be justification enough for few additional raises within next couple meetings.”