Investing.com - The Federal Reserve is expected to raise interest rates later this month, a move in line with its monetary tightening policy. This decision is driven by robust wage growth and moderate job gains in the U.S. during June. Economists predict that, given the current economic momentum, another increase may be imminent as early as September.
The labor market's strength and persistent inflation are key factors steering the central bank's decisions, as demonstrated by solid U.S. employment figures and stronger-than-expected wage growth. Minutes from a previous Federal Reserve meeting revealed a split among committee members over the necessity of a quarter-point rate hike in June. Nevertheless, the majority agreed to delay the rate hike, planning to tighten further later in the year.
This robust economic perspective is shared by Veronica Clark, an economist at Citigroup Inc (NYSE:C)., who forecasts further hikes in July and September. However, she also expressed uncertainty about future actions. Federal Reserve Chair Jerome Powell echoed her sentiments last week, maintaining that it was appropriate to slow the pace of rate increases after a rapid rise since March 2022, but didn't rule out the possibility of consecutive hikes.
The Federal Open Market Committee also largely concurs with this outlook. The minutes from their June 13-14 meeting, released earlier this week, indicated that almost all participants saw a need to raise rates further due to persistent inflation and a tight labor market.
However, while job gains in June were substantial enough to keep rate hikes on track, they also suggest some deceleration in the labor market. High interest rates and months of sluggish consumer spending contribute to concerns about the economic outlook. Lindsey Piegza, chief economist at Stifel Financial Corp., suggested that easing tight labor market conditions could give the Fed more confidence that wage growth will begin to moderate. This view is supported by the downward revision of payroll growth over the prior two months by a combined 110,000, indicating some softening in job creation.