What’s in store for America? The Fed’s response has arrived

By RockedBuzz 3 Min Read

Some Federal Reserve officials would have supported an interest rate hike at the central bank’s rate-making meeting in June. Some participants indicated that they supported a 25 basis point increase in the target band of the federal base interest rate at this meeting, or could have supported such a proposal, according to the minutes of the June 13-14 meeting, which have just been released. Those officials noted that the labor market remained very tight, economic momentum was stronger than previously expected and there were “few clear signs” that inflation is returning to the Fed’s 2% target, MarketWatch reported.

In the end, it was unanimously voted to keep interest rates unchanged in the 5-5.25% range. At the same time, according to the Fed’s dot-plot forecast, officials expect two more increases of 25 basis points by the end of the year. The minutes show that many officials wanted to slow the pace of rate hikes to give them more time to observe the impact of previous hikes.

Since the Fed meeting in June, Fed Chairman Jerome Powell has been sending the message that more rate hikes are likely. He said last week that the Open Market Committee “clearly believes there is more to do.” Traders in the derivatives markets are giving about a 90% chance of a rate hike at the end of July.

According to the minutes, the economy faces a complex outlook. There are risks associated with inflation, and the Fed’s biggest fear is that the public may accept higher inflation than the normal 2% level. If that happens, the Fed says it will have difficulty reducing inflation.

At the same time, there are downside risks to growth and upside risks to unemployment. Several Fed officials have said the central bank does not want to push the economy into recession. But the minutes show that Fed staff are still forecasting a recession. According to Fed experts, the recession will start around October and last until next March, but the recession will be mild. However, the forecast may be surrounded by even greater uncertainty than usual, as there is also a chance that the economy will continue to grow slowly and avoid a recession.

Cover image: Getty Images

Share This Article
Leave a comment