In his latest article, Nick TImiraos of the WSJ says July is locked in, and hawks are pushing for September.
The July 26 hike would result in the highest interest rates seen in 22 years.
Highlights:
- The focus of the meeting is likely to be what circumstances might trigger another rate hike in the fall. Even though inflation has recently slowed down, which could potentially signal that the upcoming increase might be the last in the Fed’s inflation fight, officials are still considering a rate lift this month. This is due to strong economic activity and hiring since May, exceeding initial expectations.
- Nonetheless, officials want further evidence of a continuous inflation decrease before deciding to halt the increases. For instance, Fed governor Christopher Waller would like to ensure the recent inflation slowdown is not merely an anomaly.
- Concerns remain among officials, known as ‘hawks’, that unless economic activity and hiring slow down, it may be more difficult to bring down inflation further. Dallas Fed President Lorie Logan expressed concerns about achieving sustainable and timely inflation targets.
- The potential future rate hikes aim to slow down the economy by lowering asset prices and increasing borrowing costs. If rates remain steady when an increase is widely expected by investors, it could trigger a market rally, thus easing financial conditions and making it harder to reduce inflation.
- Opinions differ on when the next rate increase should occur, with some advocating for a second hike in September if inflation doesn’t continue to fall and economic activity doesn’t significantly slow down. Others believe the Fed should wait to see the full effect of the rate increases before making a decision, potentially delaying until November or December.