Fed expected to pause interest rate hikes amid energy-fueled inflation rise

This post was originally published on this site

https://i-invdn-com.investing.com/news/LYNXMPEC060ED_M.jpg

Inflation has seen a sharp decrease but continues to hover above the Fed’s long-term target of 2% per year, maintaining pressure on officials for potential policy action. Despite the slight rise due to augmented energy costs, inflation remains substantially below last year’s peak. Concurrently, robust economic growth and near-record-low unemployment rates instill optimism that the Fed can curb price increases without triggering an economic downturn.

The Fed’s key lending rate currently stands between 5.25% and 5.50%, marking a 22-year high. Market traders view it as 99% likely that the Fed will refrain from hiking interest rates on Wednesday, with approximately a 70% chance of maintaining this stance at the next FOMC meeting in November, according to data from CME Group (NASDAQ:CME).

Policymakers on the FOMC aim to keep the country on what Chicago Fed President Austan Goolsbee describes as the “golden path,” striving to slow inflation while preventing a spike in unemployment and significant economic slowdown. Analysts at Goldman Sachs recently lowered their recession expectations for the United States from 20% to 15%. Other economists, including those in the Fed’s research team, no longer anticipate a contraction in the US economy this year.

In addition to its interest rate decision, the Fed will also release updated forecasts for various economic indicators, including inflation and growth, along with FOMC members’ expectations of future interest rate policy. Analysts will scrutinize these forecasts for signs of whether policymakers continue to expect interest rates to exceed current levels, as indicated in June, and the duration they believe rates should stay high to bring inflation back to target. They also predict that the Fed will significantly increase its economic growth forecast for 2023 compared to its last update in June, due to better-than-expected economic output.

Following the rate decision, a press conference with Fed Chair Jerome Powell is scheduled, which will be closely monitored for indications on the trajectory of future rate decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.