Washington: US Federal Reserve Borrowing is set to announce a sharp rise in borrowing costs on Wednesday amid a troubling acceleration of inflation, and forecasters now expect officials to opt for the biggest rate hike in nearly three decades.
Until recently, the central bank was set to raise the benchmark interest rate by 0.5 per cent again, but the resurgence of consumer and producer prices in May has fueled growing speculation of a 75-basis-point hike.
Economists say the rapidly changing situation means the Fed is behind the curve and needs to react strongly to prove its resolve to tackle inflation.
“It’s possible that by Wednesday the only way for the Fed to surprise the markets would be to raise rates by 50 bp,” tweeted Harvard economist and former White House adviser Jason Furman.
If policymakers decide on a major move, it would be the first 75-basis-point increase since November 1994.
The Federal Open Market Committee resumed discussions on the second day of its policy meeting and is due to announce a rate decision at 1800 GMT.
Fed Chairman Jerome Powell will hold a press conference after the meeting to provide more details on the central bank’s plans, including an indication of how aggressive policymakers will be in upcoming meetings.
President Joe Biden has fully supported the Fed’s fight against the sharpest price hike in more than 40 years, as he sees inflation eroding his popularity and diverting attention from other milestones, including Includes the rapid recovery of the world’s largest economy and record job growth.
US central bankers began raising interest rates to zero in March as huge US consumer demand for homes, cars and other goods collided with transportation and supply chains in parts of the world where Covid-19 remained – and persisted. There has been a challenge.
This fueled inflation, which worsened dramatically after Russia invaded Ukraine in late February and Western countries imposed harsh sanctions on Moscow, leading to a sharp rise in food and fuel prices.
US gasoline prices have reached $5 a gallon for the first time ever and are setting new records daily.
Economists thought March was the peak for consumer price growth, but the rate rose again in May, jumping 8.6 percent in the latest 12 months, and wholesale prices also rose, almost entirely of energy, especially gasoline. due to rising costs.
The Fed was caught off guard with the pace of price hikes, and while policymakers generally prefer to explicitly telegraph any policy changes to financial markets, the latest data has changed the calculations.
Powell had indicated that policymakers were ready to implement a one-and-a-half point increase in the benchmark lending rate this week and another one next month, easing red-hot inflation without slamming the economy into recession and reducing inflation from the 1970s. with the aim of avoiding the deadlock of the genre.
“The 75 bps increase … will be about giving people/markets confidence that they are serious about continuing with higher rates in 2023,” Furman said.
However, the central bank cannot influence supply issues, and rate hikes only work by cooling demand and slowing the economy – meaning policymakers are walking a fine line between influencing and doing too much. Huh.
And the effect will not be immediate.
“Monetary policy operates with gaps, with inflation today reflecting decisions taken a year ago,” said Adam Posen, head of the Peterson Institute for International Economics and a former central banker.
“If the Fed had hiked in 2021Q2/Q3, inflation would be different now – at least (because) the current global shocks would not have accumulated on already high inflation,” he said on Twitter.
Biden has been scrambling to find a way to ease the pain of American families, including lashing out at oil companies pulling in record profits.
In a letter to oil officials, he called the high windfall “unacceptable” and called on ExxonMobil, Chevron and others to “take immediate action to increase supplies of gasoline, diesel and other refined products,” according to media reports.
Biden again on Tuesday blamed Russia for the inflation that is afflicting countries around the world, and criticized Republicans for blocking their efforts to provide aid to families who bear the brunt of the impact.
Until recently, the central bank was set to raise the benchmark interest rate by 0.5 per cent again, but the resurgence of consumer and producer prices in May has fueled growing speculation of a 75-basis-point hike.
Economists say the rapidly changing situation means the Fed is behind the curve and needs to react strongly to prove its resolve to tackle inflation.
“It’s possible that by Wednesday the only way for the Fed to surprise the markets would be to raise rates by 50 bp,” tweeted Harvard economist and former White House adviser Jason Furman.
If policymakers decide on a major move, it would be the first 75-basis-point increase since November 1994.
The Federal Open Market Committee resumed discussions on the second day of its policy meeting and is due to announce a rate decision at 1800 GMT.
Fed Chairman Jerome Powell will hold a press conference after the meeting to provide more details on the central bank’s plans, including an indication of how aggressive policymakers will be in upcoming meetings.
President Joe Biden has fully supported the Fed’s fight against the sharpest price hike in more than 40 years, as he sees inflation eroding his popularity and diverting attention from other milestones, including Includes the rapid recovery of the world’s largest economy and record job growth.
US central bankers began raising interest rates to zero in March as huge US consumer demand for homes, cars and other goods collided with transportation and supply chains in parts of the world where Covid-19 remained – and persisted. There has been a challenge.
This fueled inflation, which worsened dramatically after Russia invaded Ukraine in late February and Western countries imposed harsh sanctions on Moscow, leading to a sharp rise in food and fuel prices.
US gasoline prices have reached $5 a gallon for the first time ever and are setting new records daily.
Economists thought March was the peak for consumer price growth, but the rate rose again in May, jumping 8.6 percent in the latest 12 months, and wholesale prices also rose, almost entirely of energy, especially gasoline. due to rising costs.
The Fed was caught off guard with the pace of price hikes, and while policymakers generally prefer to explicitly telegraph any policy changes to financial markets, the latest data has changed the calculations.
Powell had indicated that policymakers were ready to implement a one-and-a-half point increase in the benchmark lending rate this week and another one next month, easing red-hot inflation without slamming the economy into recession and reducing inflation from the 1970s. with the aim of avoiding the deadlock of the genre.
“The 75 bps increase … will be about giving people/markets confidence that they are serious about continuing with higher rates in 2023,” Furman said.
However, the central bank cannot influence supply issues, and rate hikes only work by cooling demand and slowing the economy – meaning policymakers are walking a fine line between influencing and doing too much. Huh.
And the effect will not be immediate.
“Monetary policy operates with gaps, with inflation today reflecting decisions taken a year ago,” said Adam Posen, head of the Peterson Institute for International Economics and a former central banker.
“If the Fed had hiked in 2021Q2/Q3, inflation would be different now – at least (because) the current global shocks would not have accumulated on already high inflation,” he said on Twitter.
Biden has been scrambling to find a way to ease the pain of American families, including lashing out at oil companies pulling in record profits.
In a letter to oil officials, he called the high windfall “unacceptable” and called on ExxonMobil, Chevron and others to “take immediate action to increase supplies of gasoline, diesel and other refined products,” according to media reports.
Biden again on Tuesday blamed Russia for the inflation that is afflicting countries around the world, and criticized Republicans for blocking their efforts to provide aid to families who bear the brunt of the impact.