The Federal Reserve is anticipated to maintain interest rates at current levels on Wednesday afternoon, while leaving the door ajar for potential future measures to combat inflation. Analysts and Federal Reserve observers widely expect officials to chart a course for one additional rate hike before settling into an extended period of stability. Marvin Loh, senior global macro strategist at State Street, affirmed, “I think the market is correct in expecting the Fed to skip this meeting and maintain its vigilance. They will keep optionality for another hike before they are done with the tightening process.”
At present, rates are situated within the range of 5.25%-5.5%, following an aggressive series of eleven rate hikes since March 2022, marking the most assertive action taken by the central bank to address inflation since the 1980s. The looming question is the duration of the Federal Reserve’s steadfast stance at elevated levels. Will officials still consider 100 basis points of rate cuts in the upcoming year, or will a more conservative projection suggest rates will persist at higher levels for an extended period? Loh further emphasized, “They might signal they are not going to cut as aggressively going into next year. So this higher-for-longer message is probably where we are starting to see concerns around interest rates being… higher over the last couple of days and a little bit of volatility within the equity markets as of late.”
Federal Reserve Chair Jerome Powell is expected to emphasize that the task of taming inflation is far from complete and that the Fed will remain resolute in its efforts to bring inflation back to the 2% target. Powell is also likely to reiterate his stance from the Jackson Hole summit, asserting that the Fed is “in a position to proceed carefully,” while leaving the possibility of rate hikes firmly on the table.
Investors are slated to receive a fresh set of economic projections today, potentially revising down inflation forecasts and adjusting GDP estimates upward. This comes in light of data indicating a moderation in prices and continued resilience in the economy. The Fed’s favored gauge of inflation — the Personal Consumption Expenditures (PCE) Index, which excludes food and energy costs, or the “core” PCE — showed a 4.2% increase over the previous year in July, up from 4.1% in June but down from the 4.5%-4.6% range observed in the first half of the year. Another inflation metric — the Consumer Price Index (CPI) — rose by 4.3% in August, marking a deceleration from the 4.7% recorded in July and the slowest pace since October 2021.
The Federal Reserve is scheduled to announce its monetary policy decision at 2:00 p.m. ET Wednesday, followed by a press conference featuring Powell at 2:30 p.m. ET. Kevin Flanagan, the head of WisdomTree’s fixed income strategy, recently commended, “One thing I will give Powell and company credit for is they have guided the markets pretty well up to now.”
The Federal Reserve’s core mandate is to maintain inflation on a consistent trajectory year after year. As more data becomes available in the coming months, the Federal Reserve’s actions, particularly in terms of rate hikes, will wield significant influence over the trajectory of the U.S. economy. While the Fed is expected to maintain interest rates steady, the public can rest assured that it remains watchful of potential inflation in the future.
Source: Yahoo Finance