Investors and economists are bracing for another interest rate hike this week as central bank officials gather in Washington for their July meeting. Their two-day rally on July 26-27 comes as the Federal Reserve scrambles to tackle soaring inflation that has left families across the country struggling to make ends meet.
Economists expect Fed officials to hike the federal funds rate by 75 basis points – taking the rate to between 2.25% and 2.50%, where it was at its most recent peak in the US. summer 2019 before the coronavirus pandemic.
This will mark the federal funds rate was close to zero percent. At its June meeting, the Federal Open Market Committee raised the federal funds rate 75 basis points more aggressively for the first time in nearly 30 years after increases of 25 basis points and 50 basis points during meetings in March and May, respectively.of the year, with consumer prices rising at the fastest rate in more than 40 years. Five months ago, the
“Some Fed officials left a 100 basis point hike on the table after last week’s hard CPI report, but a decline in inflation expectations appears to have persuaded the Committee to stick to its initial plan,” Goldman Sachs economists said in a preview note from the meeting. . They also said financial conditions have “already tightened enough to put the economy on a low enough growth path.”
With consumer prices up more than 9% from a year ago, further rate increases are expected through the end of the year.Fed officials have projected the rate to rise to over 3% by 2023. The committee will meet again in September, November and December.
Economists and investors will be keeping a close eye to see what guidance Federal Reserve Chairman Jerome Powell gives regarding future meetings. In a note on Monday, Deutsche Bank said its economics team expects 50 basis point hikes in September and November before a 25 basis point hike in December.
The increase in the federal funds rate has resulted in higher borrowing costs for Americans. According to Greg McBride, chief financial analyst at Bankrate.com, variable rate debt such as credit cards and home equity lines of credit will be the most affected.
“Consumers should turn to low-rate credit card balance transfer offers and do so urgently to protect themselves from further rate increases and make progress in paying down debt,” McBride said. “Ask your lender if it’s possible to fix the interest rate on your home’s equity balance.”
The Federal Open Market Committee comes as several other key pieces of economic data are expected to be released this week. On Thursday, the Commerce Department will release its GDP report for the second quarter of 2022, which could still show signs that the United States is in a recession after the measure of economic activity fell in the first quarter of the year.
On Monday, President Biden said at an event that the United States would not be in a recession, noting that the unemployment rate was near its pre-pandemic level at 3.6%. Over the weekend, Treasury Secretary Janet Yellen, who also served as chair of the Federal Reserve, acknowledged in an interview that the economy is slowing but said it was not a growing economy. recession. Whether the United States is in a recession is determined by the National Bureau of Economic Research. Yellen argues that the economy is in a period of transition.
The Commerce Department will also release its latest Personal Consumption Expenditures Price Index report for June on Friday, the preferred gauge of inflation used by the Federal Reserve.