What to expect from today’s Fed meeting

Washington, DC
CNN
—

The Federal Reserve is widely expected to announce on Wednesday at the conclusion of its monetary policy meeting that it will keep interest rates steady at their highest level in 22 years. This will be the second meeting in a row that the Fed has kept interest rates unchanged.

But that doesn’t mean the Fed is done raising interest rates. Federal Reserve Chairman Jerome Powell has made it clear that the US central bank He wants to hold the option of another price hike If the data shows that the decline in inflation has stopped.

“Given the uncertainties and risks and how far we have come, the committee is acting cautiously,” Powell said. he said last month in New York. “We will make decisions on how much to further tighten the policy and how long the policy will remain restricted based on the totality of incoming data, evolving forecasts and the balance of risks.”

It is possible that an additional rate hike will occur during the Fed’s meeting on December 12-13, which will likely be the last meeting. In this course. Federal Reserve officials intervened Another increase in interest rates this year In the economic forecasts they issued in September, but the central bank may forget about that final rise if data in the coming weeks show that inflation continues to slow, even though the economy expands strongly and the labor market remains tight.

However, hawkish officials at the Fed — those who support a more aggressive approach to tackling inflation — believe there is more room to raise interest rates.

“Inflation is still well above level [committee’s] The target is 2%. Federal Reserve Governor Michelle Bowman said last month in Morocco that domestic spending continued at a strong pace and the labor market remains tight. “This suggests that interest rates may need to rise further and remain restrained for some time to bring inflation back to the FOMC target.”

The Fed’s preferred measure of inflation – the personal consumption expenditures price index – fell Just a little bit in September. The core index, which excludes food and energy prices, rose 3.7% for the 12 months ending in September, down from the 3.8% rate recorded in August.

The Fed still appears to be able to beat inflation without a sharp rise in unemployment, a scenario known as a soft landing.

But for now, the central bank is balancing the risk that inflation could accelerate again against the risk that its actions will cause unnecessary economic damage.

Despite the Federal Reserve raising interest rates 11 times since March 2022, the US economy has shown remarkable resilience. Economic growth expanded at an annual rate 4.9% in the third quarterIt is the strongest rate in two years, with consumer spending, America’s economic engine, growing at its fastest pace since 2021.

At the same time, employers continued to hire at a strong rate, 336 thousand jobs added in SeptemberIt was the largest monthly gain since January, while the unemployment rate remained at a low of 3.8% that month. The Labor Department will release October data measuring the labor market on Friday.

Worker applications for unemployment benefits remain at historically low levels, and workers continue to receive them Solid wage gainsJob opportunities continue to exceed the number of unemployed people actively looking for work by the millions.

Luke Tilley, chief economist, said: “Inflation has continued to fall, despite strong wage growth and a strong economy, which indicates companies have managed to figure out how to deal with higher costs. I believe inflation will continue to fall.” The Wilmington Trust told CNN. “The economy is going through a soft landing.”

Instead of the US economy being in the midst of a recession, as economists expected in the wake of the spring banking crisis, the US economy is doing well.

But this flexibility is sure to be tested. Powell said that high bond yields currently play an important role in controlling the economy, since Treasuries are the benchmark used to price debt. This means that higher yields lead to higher interest rates on car loans and the cost of mergers and acquisitions, for example.

Banks have also tightened their lending standards, and the resumption of student loan payments last month means Americans’ budgets are under pressure. Some research also suggests that American consumers have likely already withdrawn the excess savings that many of them have accumulated during the pandemic.

The American economy is also facing two wars, both worth trillions of dollars Federal debta The housing market is frozenAnd geopolitical tensions in the Middle East, which could lead to higher oil prices if the war between Israel and Hamas escalates.

It is clear that the economic landscape has become more difficult since the beginning of the year, but some economists remain optimistic about the economy’s resilience and the defeat of inflation.

“A resilient consumer and stable labor market could help the Fed deliver one of its greatest comebacks ever — a growing economy and lower inflation,” Nella Richardson, chief economist at payroll processor ADP, wrote in a note.