US interest rate may hit 22-year record high by Tuesday
ALBAWABA – The United States (US) Federal Reserve (Fed) Board is slated to convene July 25-26 to discuss further monetary policy measures, amid anticipation of another US interest rate hike, news agencies reported Sunday.
Most of the world’s major central banks are also slated to meet in the coming few weeks to set monetary policy, amid continued signs of still-high inflation.
According to Bloomberg, both the Fed and European Central Bank (ECB) are expected to hike interest rates by 0.25 percent.
This hike would place the US interest rate at the highest level in 22 years, with yet more hikes possibly in store, as reported by the New York-based news agency.
The Fed last raised US interest rates in May, calling a pause on hikes in June, giving the board enough time to collect sufficient data to get a more accurate feel of the economy, Fed officials explained.
Both Fed Chair Jerome Powell and ECB President Christine Lagarde have warned that inflation remains too high, forcing the central banks to raise borrowing costs higher.
Look past July, however, neither the Fed nor the European central bank are slated to meet in August.
As both central banks are scheduled to reconvene in September, Bloomberg’s economists said the outlook for monetary policy towards the end of the year remains open to all kinds of scenarios.
But with neither central bank meeting again until September, economists say the outlook for policy into the back end of the year remains open-ended.
The Bank of Japan remains the outlier, with more than 80 percent of analysts polled by AFP expecting Governor Kazuo Ueda to continue pumping support into the world’s third-largest economy. Even as inflation remains above their 2 percent target.
Inflation and US interest rate
The Federal Open Market Committee is expected to raise rates a quarter point to the 5.25-5.5 percent range, which would be the 11th increase over the past 16 months.
“Inflation is slowing, but not quickly enough for the Fed,” James Knightley, chief international economist at ING Financial Markets LLC, told Bloomberg.
“With the jobs market remaining firm, officials are taking no chances.”
"The cooling of the economy is only happening slowly," Bank of America's chief US economist Michael Gapen wrote in a recent investor note, as carried by Agence France-Presse (AFP).
"We think most committee members believe further rebalancing of supply and demand is needed to ensure disinflation will continue," he added, explaining why he expects another hike on Wednesday.
Since the Fed pinned the US interest rate in June, board’s favorite measure of inflation has slowed to less than 4 percent year-on-year.
Meanwhile, unemployment is close to record lows and economic growth was also revised as seen to be growing significantly for the first quarter, despite higher rates, on the back of stronger-than-expected consumer spending, AFP reported.
Economists and analysts are hopeful for a “soft landing”, as AFP called it.
A soft landing, in this case, occurs when the Fed succeeds in bringing down inflation by raising interest rates, while avoiding a recession and a tragic surge in unemployment.
"We see the line between mild recession and soft landing as increasingly fine and view the probabilities of the latter outcome undeniably on the rise," Deutsche Bank economists wrote in a recent note to clients, according to AFP.
