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Cases grow for Fed to raise rates 'once and for all' as economy slows

Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – Economic data has begun to fill in the picture that the U.S. economy is losing steam, and in the past The seven-day report showed job growth, inflation, factory output and consumer spending all slowing.

The combined impact did not cause Fed officials to halt further rate hikes, with policymakers still seeing a possible 25 percentage point hike in the benchmark overnight rate to 5 next month.%-5.236% range, which would be the highest level 236 since the start of the pandemic global economic crisis.

However, the debate is starting to intensify over whether the next rate hike by the US central bank will be the last in an aggressive tightening cycle that may finally have begun to show itself. Financial markets are betting on this one-and-done scenario.

“Let’s remember that we’ve raised a lot of money and it’s going to take time to play out across the system,” Chicago Fed Chairman Goolsbee told CNBC on Friday. This comes after new data showed U.S. retail sales fell 1% in March, a much larger drop than economists had expected in a Reuters poll

“With this retail sales data we may see a little bit of a lag, If there are financial stresses on top of that, let’s not be too aggressive,” Goolsbee said, referring to the possibility that the recent failure of two regional U.S. banks could have an impact on the expected impact of a rise in Fed policy rates. Add a deeper credit crunch on top of that.

The retail sales data at least hinted that the pandemic-era spending boom may be coming to an end, although some economists argue that historically low unemployment and rising wages make a big drop in consumption unlikely. Under pressure, with little progress in inflation, there is no reason to call off further rate hikes.

“I welcome the signs of a slowdown in demand, but until they do, I see a meaningful and sustained decline in inflation to our 2% objective, and I believe there is work to be done,” said Warner Supporting the argument that high inflation remains the Fed’s main adversary at this point, Le said.

Inflation is currently more than double target and progress in this direction has been slow. Indeed, bimonthly sentiment pulse data from the University of Michigan released on Friday showed the headwinds the Fed faces in this regard and supported the argument against pausing the tightening cycle.

Data showed households expect inflation to accelerate sharply in the coming year, reversing months of progress in viewing inflation as a fading phenomenon. The survey’s one-year inflation expectations jumped a full percentage point to 4.6% from 3.6% in late March, the largest monthly increase since May, when inflation was just starting to take root .

But even Waller conceded that the Fed will need to keep a close eye on financial and economic data in the coming weeks, especially for evidence of what he calls any “sudden” shift in lending standards that could potentially Reflecting a hit to credit by banks that was more than policymakers thought was needed to slow inflation.

“close to the end”

Economic data outside of retail sales showed some evidence of a slowdown – enough even for Fed staff to call the central bank’s March 22-22 Ahead of the policy meeting forecast a “moderate recession” starting later this year.

New data from the past week showed that manufacturing output fell in March, the overall rate of price inflation fell sharply, import costs fell, and firms increased profit margins to their final prices falling rapidly – some economies Economists believe this dynamic could deal a major blow to headline inflation.

The 22, U.S. employers added last month Jobs were considered strong in the years leading up to the pandemic, but it marked the smallest gain since December 2020 and in what direction monthly job growth is now expected will decline steadily.

There will be no more major economic data ahead of the Fed’s May 2-3 meeting.

Weekly statistics on bank lending are likely to become a bone of contention, however, and Fed officials will be able to review quarterly surveys of bank lending officials at their meeting next week ahead of a public release.

In an interview with Reuters on Thursday, Atlanta Fed President Raphael Bostic said he was encouraged by recent inflation trends , and argues that further rate hikes will bring the Fed “on target and on hold” “at a level that will cause inflation to decline over time.

Scott Anderson, the bank’s chief economist, said if No major surprises in banking, inflation or economic data, “they feel like they are approaching the end of the rate hike cycle” West.



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