Federal Reserve Expected to Raise Interest Rates by 25 Basis Points at FOMC Meeting
On May 2-3, the Federal Reserve's Federal Open Market Committee (FOMC) will hold its regular meeting. The majority of economists believe that the FOMC will announce a 25 basis points increase in interest rates, which will raise the federal funds rate range to 5.00% to 5.25%. This will be the highest interest rate since 2006 and the tenth consecutive rate hike from these FOMC meetings.
While some policymakers may advocate for more rate hikes beyond May, many experts, including myself, anticipate a "wait and see" approach to be taken. It is likely that the Committee may modify its policy statement to indicate its readiness to be patient when determining the need for future adjustments to the target range.
Fed Chair Jerome Powell's Potential Emphasis
During the news conference, Fed Chair Jerome Powell may emphasize three crucial points:
Inflation Remains Too High for Comfort: The latest CPI and salary data indicate that inflation remains too high for comfort, necessitating the continuation of a restrictive monetary policy stance by the Fed.
US Economy and Labor Market are Slowing Down: The US economy and labor market are experiencing reduced growth rates, with poor consumer spending momentum, reduced hiring, and increased layoffs. This is precisely what the Fed wants to see in order to help curb inflation.
Tighter Lending Conditions Will Impact Economic Growth: Tighter lending conditions will impact economic growth, hiring, and inflation, mitigating the need for further rate rises. Quantitative tightening is likely to continue, with no relaxation for the time being.
Potential for Economic Slowdown
The US economy is displaying signs of poor health, with persistent high pricing for goods and services, high interest rates, and now tightening credit restrictions. This is coupled with recent bank failures, and these factors are likely to result in a minor recession by mid-year. It remains to be seen whether Fed Chair Jerome Powell will express a more candid view about the likelihood of a recession or if the below-trend GDP growth will lead to a "Goldilocks soft landing."