Cooling US Inflation Lifts Hope for Smaller Fed Rate Hike

Summary:

Slowing inflation and a cooling property sector are fuelling expectations that the United States central bank can adopt a smaller interest rate hike this week, as policymakers assess current efforts to rein in prices.

As consumer inflation rocketed to decades-high levels last year, the Federal Reserve raised rates seven times in an aggressive campaign to cool the world's biggest economy and lower costs.

Since then, the interest-sensitive property sector has slumped, retail sales have weakened and wage growth has started to ease, prompting some Fed policymakers to suggest it may be time to slow the pace of rate hikes further.

"A slower pace of rate hikes will give the committee time to assess the full economic effects of monetary tightening thus far," said Moody's Investors Service in a report.

Markets expect the Fed to adopt a 25-basis-point hike at the end of a two-day meeting on Wednesday, slowing the pace of increases for a second time in a row.

This would take the benchmark lending rate to 4.50 per cent to 4.75 per cent, a level last seen in 2007. In December, the Fed announced a 50-basis-point hike, stepping down from four earlier, steeper spikes.

"They are seeing the desired effects of policy," Rubeela Farooqi of High Frequency Economics told AFP.

"They don't want to keep on pushing until they get the economy into a recession," she said.

"Far from won"

But the inflation fight "is far from won", warned the Moody's report.

Although demand appears to be moderating and supply bottlenecks have eased, spending has been stronger than expected.

This has prevented inflation from falling more rapidly and suggests that the Fed's "terminal rate" - the level at which it will halt its increases - remains uncertain.

For inflation to come down to the Fed's target, "we will need a little bit of softening in the labour market", Madhavi Bokil of Moody's Investors Service told AFP. This could show up in a slower pace of hiring and fewer vacancies.

Wages do not appear to be driving inflation up, but they do lend some support to consumer spending as households draw down on COVID-19 pandemic-era savings.

Salary gains remained high last year, while employers were reluctant to shed workers they may have struggled to find since the pandemic, keeping the labour market tight.

"Soft landing"

On the other hand, the fact that the labour market has not slumped in response to tightening monetary policy brings optimism for a "soft landing" of the economy, where inflation comes down without triggering significant job losses or a major downturn.

"No one ever said that arranging a soft landing is easy, but our base case remains that if the Fed stops raising rates soon, the risk of a severe recession is quite small," said Ian Shepherdson of Pantheon Macroeconomics.

If the Fed raises rates too far, a "bigger danger" would be an unnecessary recession, he said.

"However much the Fed might want to be sure the inflation demon is put back in its box", dragging inflation below policymakers' 2 per cent target and an "accompanying rise in unemployment would represent a policy failure", said Shepherdson.

Source: AFP

Risk Warnings and Investment Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

Quick Access to 7x24

Quick Access to More Editor-selected Real-time News

Full Access to Pro Video Channel

FastBull project team is dedicated to create exclusive videos

Real-Time Quotes

View more faster market quotes

More comprehensive macro data and economic indicators

Members have access to entire historical data, guests can only view the last 4 years

Member-only Database

Comprehensive forex, commodity, and equity market data

7x24

Real Time Quotes

Economic Calendar

Economic Calendar
Events
Holiday

Policy Rates

BANKS ACT (%) PREV (%) CPI (%)

English

简体中文

繁體中文

العربية

Home News Columns AI News Economic Calendar Quotes Videos Data Warehouse Analysis AI Signals Pro User Agreement Privacy Policy About Us

Risk Disclosure

The risk of loss in trading financial assets such as stocks, FX, commodities, futures, bonds, ETFs or crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No consideration to invest should be made without thoroughly conduct your own due diligence, or consult with your financial advisors. Our web content might not suit you, since we have not known your financial condition and investment needs. It is possible that our financial information might have latency or contains inaccuracy, so you should be fully responsible for any of your transactions and investment decisions. The company will not be responsible for your capital lost.

Without getting the permission from the website, you are not allow to copy the website graphics, texts, or trade marks. Intellectual property rights in the content or data incorporated into this website belongs to its providers and exchange merchants.

Russia-Ukraine Conflict

The Fed

China-U.S. Relations

FastBull Spotlights

FastBull Featured

FastBull

Devin

Winkelmann

Recent Searches

Trending Searches

Quotes

7x24

Cooling US Inflation Lifts Hope for Smaller Fed Rate Hike

Source: AFP

Risk Disclosure