Wednesday, May 31, 2023
HomeEconomyFed hikes 0.75% for third straight rate as competition for restrictive territory...

Fed hikes 0.75% for third straight rate as competition for restrictive territory heats up

By Yasin Ebrahim — The Fed hiked rates for the third time in a row by 0.75% Wednesday did not Showing signs of loosening its restrictive territory as it struggles to cool the embers of inflation.

The FOMC raised its benchmark rate from 2.47 to 3% to 3.25% range*)% was 2.5% before.

Following the latest rate hike, the Fed has now raised its benchmark rate by 300 basis points, or in just six months It rose 3 percent intraday as the central bank accelerated policy into restrictive territory, aiming to slow growth enough to bring down inflation significantly.

“Powell said in a press conference after the monetary policy statement that we have just entered very, very low levels that may be restrictive [territory].” In my opinion, there is a Way to go,”

The Fed now expects its benchmark rate to rise to 4.4% in 2022, up from 3.4% in June The remaining two Fed meetings this year pave the way for further advance rate hikes and enter 2023.

The central bank previously hinted that 2023 will peak around 3.8%, with a possible rate cut to follow 2023, but now the central bank is preparing to keep rates higher

Now expects 2024 rates to hit 4.6%. In 2024, voting Fed members forecast rates will drop to 3.9% , although this is still higher than the previous forecast of 3.4%.

The Fed’s hawkish stance has led many to believe that a hard landing or recession is unlikely to be enoughd

“We have always understood that restoring price stability while achieving relatively modest unemployment growth and a soft landing will be very challenging,” Powell added. “Nevertheless, we are committed to bringing inflation back to 2 percent. “

Projections in the Fed’s summary of economic forecasts appear to support Powell’s stance as inflation is revised up and economic growth falls.

As the Fed’s preferred measure of inflation The indicator, the Core Personal Consumption Expenditure Price Index, is expected to climb to 4.5% in 300, up from a previous forecast of 4.3%. 2023’s inflation rate is expected to fall to 3.1%, compared to the previous forecast of 2.7%, while 2023 inflation expectations remain unchanged at 2.3%.

“Inflation remains high, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said in a statement.

Fed member estimates 2022 The economy will grow by 0.2%, well below the previous forecast of 1.7%. 2023 and 2024 growth forecasts were also revised down to 1.2% and 1.7% from 1.7% and 1.9%, respectively.

The Fed believes a shift to a restrictive zone will give consumption a boost as rising unemployment limits wages Consumer spending is weighing on consumer spending.

The central bank now expects the full-year unemployment rate to end at 3.8% – slightly higher than its previous forecast of 3.7%. But labor supply and demand are likely to change over the next few years, according to Fed projections Recovery, the unemployment rate is expected 2023 to reach 4.4% and remain unchanged in the following year. This is higher than the previous June forecast 2023 and 2024 unemployment at 3.9% and 4.1%, respectively.

In addition to rate hikes, the Fed’s balance sheet shrinking or quantitative tightening program is expected to tighten further Financial conditions. Earlier this month, the Fed accelerated the pace of QT from $47 to 25 $1 billion) $500 million in June.

For some, the pace of tightening raises the risk that the Fed will unduly slow growth, pushing the economy into a deep recession.

“It is clear that the risks are exacerbating the slowdown leading to a hard landing. GraniteShares founder and CEO Will Rhind told in a recent interview that this is the bigger risk right now, and it increases with each rate hike in a slowing growth environment.

However, the looming threat of a recession remains unlikely, Rhind said, as the economy “is still in good shape, unemployment is low and consumers are still spending.”



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