Fed Chair Powell may shed light on the Fed's anticipated rate-hike trajectory.
This week, the Federal Reserve is expected to step up its fight against inflation by raising interest rates significantly again, potentially worsening the economic situation for millions of people and companies throughout the country.
The U.S. central bank is anticipated to approve another 75 basis point rate rise at the conclusion of its two-day meeting on Wednesday due to the fact that inflation increased more than predicted in September and the labor market is continuing to expand at a robust clip.
According to Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser, "a 75-basis-point rate hike on Wednesday should be fully expected as the unemployment rate is still at a 50-year low and there is nothing to suggest that Powell will soften his stance on fighting inflation." The increase in the stock market since the last Fed meeting in mid-September only supports Powell's argument for keeping financial conditions tight.
But Wall Street is even more intently watching what Fed Chairman Jerome Powell could suggest during his 2:30 p.m. ET news conference on Wednesday on the central bank's battle against inflation. Investors are avidly watching for indications that the Fed is releasing the brakes and moderating its rapid rate-hike pace. Markets have risen recently on expectations that the Fed will soon change its ultra-aggressive course.
BIGGEST COLA INCREASE SINCE 1981 FOR RECIPIENTS OF SOCIAL SECURITY
Some had hoped for a Fed turn, but the persistence of high inflation and the job market's ongoing resilience have shattered such aspirations.
The consumer price index, a broad indicator of the cost of living that includes the price of food, fuel, and rent, increased by 0.1% from the previous month in August, shattering expectations for a decrease, as inflation ran even hotter than projected last month. The yearly rate of inflation is at 8.3%, which is a nearly 40-year high.
According to Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser, "a 75-basis-point rate hike on Wednesday should be fully expected as the unemployment rate is still at a 50-year low and there is nothing to suggest that Powell will soften his stance on fighting inflation." The increase in the stock market since the last Fed meeting in mid-September only supports Powell's argument for keeping financial conditions tight.
With the federal funds rate range now between 3.00% and 3.25%, officials at the central bank have already authorized five straight interest rate increases, including back-to-back increases of 75 basis points in June, July, and September. This is very close to being restrictive. Investors anticipate the Fed to maintain rates in a constrictive range for a while before there is conclusive proof that inflation has declined and won't recur.
A FED rate increase of 5% is anticipated to precipitate a global recession, according to a survey.
The Fed's members predicted a peak rate of 4.6% for the economy next year, according to economic predictions from their most recent meeting, although that might rise based on upcoming economic data. Rates are currently anticipated by Goldman Sachs to reach a top of 5% in March.
The Fed is attempting to strike a balance between containing inflation without stifling growth, but doing so comes with the danger of a recession, and an increasing number of analysts and Wall Street corporations are predicting one this year or the following.
Tomas Philipson, a University of Chicago economist and the previous leader of the White House Council of Economic Advisers, told FOX Business that the task was "extremely difficult." "It's not that the [Fed] lacks ability. Simply said, it cannot be done. It's comparable to organizing a wedding on a warm summer day. Both the weather and the economy are impossible to predict."
By compelling businesses to reduce spending, rising interest rates tend to result in higher rates on consumer and commercial loans, which slows the economy. In comparison to a year ago, mortgage rates have virtually doubled to more than 6.0%, while some credit card companies have increased their rates to 20%.
Higher rates for savers do have a silver lining, though. Some banks and credit unions may raise their savings rates during Fed rate rises, giving clients — particularly seniors living off of their savings — a nice opportunity to earn more.