Washington: US Federal Reserve (Fed) poised to slow rate hike next week, economists say. That’s as central banks’ strongest move to combat inflation in decades ripples through the economy.
But analysts expect the Fed’s benchmark lending rate to rise by 0.5 percentage points as it struggles to cool US demand to keep consumer costs down.
Households in the world’s largest economy have been battling ferocious prices, exacerbated by skyrocketing food and energy costs after Russia’s invasion of Ukraine.
To make borrowing more expensive, the Fed has hiked rates six times this year, including four big 0.75-point hikes, from 3.75% to 4%.
Oren Crackkin of Oxford Economics said, “I think we are ready for a (half) rate hike this month,” as rate-sensitive sectors such as housing reels and inflation show signs of easing. ‘ said.
The decision will be announced after a two-day Federal Open Market Committee (FOMC) meeting on December 13th.
Policymakers are eyeing wage growth amid concerns that rising salaries will increase inflationary pressures.
“Wage growth is the Fed’s main concern here,” said Martin Wurm of Moody’s Analytics, adding that the Fed is unlikely to ease policy until it sees consistent progress on this front. added.
“This doesn’t necessarily mean the rise will go on forever, but it does mean that interest rates will go up a bit and keep going up through next year,” Wurm told AFP.
Higher benchmark interest rates make it more expensive to borrow money for big purchases like cars or real estate or to expand your business.
CPI inflation remained at 7.7% in October despite the Fed’s strong move, job growth remains solid, and the central bank may prolong its aggressive campaign Fears unsettled the market.
“A strong job market, rising wages and strong household balance sheets are key areas supporting demand,” said ING economist James Knightley.
Household wealth has increased by US$30 trillion (RM132 trillion) since the start of the pandemic, and consumers can cut back on their savings as the cost of living soars, he noted.
“We are also increasingly using consumer credit cards and credit cards to fund our spending, which can be a sign of stress and can help us maintain our standard of living,” Knightley told AFP. It shows that the efforts of families to protect themselves are starting to run out.”
Fed Chairman Jerome Powell has warned that monetary policy will likely have to remain tight “for some time”, even if the pace of rate hikes could ease as early as December. increase.
The timing of this easing is less important than the question of how many officials need to raise rates or how long policy restrictions need to be maintained, he added in his speech.
Many economists see a 50-50 chance of a recession, Wurm said, which would likely mean a slight contraction in GDP.
“You can’t necessarily expect a big financial crisis like 2008. Most of the economy is still in pretty good shape,” he said.
The U.S. economy recovered strongly after Covid-19, boosting incomes, but the lockdown period also contributed to the profits of U.S. businesses, showing resilience despite a sharp tightening by the Fed. rice field.
ING’s Knightly said policymakers maintain the mindset that the risks of too little outweigh the risks of too much.
“They will tolerate a recession to ensure that inflation is beaten,” he added. -AFPMore
