The unusually ambiguous benchmark that Federal Reserve governors set for when the American central bank should begin reducing interest rates was "greater confidence" that inflation was on a sustainable downward path. This was the reason they departed their policy meeting in late January.
Rather, they have been hit hard by the skyrocketing costs of services, the unexpectedly strong growth in employment, and the unpredictably rapid rise in housing expenses.
Their main concern, which is quite different from confidence, is whether or not the Fed's policy rate needs to remain in the current range of 5.00% to 5.25% for a longer period of time than investors, consumers, politicians, and even U.S. central bank officials had anticipated. The two-day meeting ends on Wednesday.
Following a historic wave of strong monetary tightening brought on by inflation reaching a 40-year peak, that range was established in July of last year. New economic forecasts and a monetary policy statement are scheduled to be released at 2:00 p.m. EDT (1800 GMT). These will reveal whether policymakers maintain their December outlook, which was predicated on the assumption that inflation would continue to decline, and whether they still intend to lower the policy rate by 0.75% this year.
Fed Chair Jerome Powell will discuss the new policy statement in detail at a press conference that follows the meeting. He will also field questions regarding whether his recent statement that the U.S. central bank was "not far" from deciding to cut interest rates still stands in the face of unexpectedly rapid price increases.
The statement's continued use of the term "elevated," which the Fed has employed during the current tight credit phase and may drop to hint at impending rate decreases, is another crucial point.
Powell will face pressure from both sides of the debate: some believe that inflation is starting to settle at levels that are too high to ignore, while others believe that the impending slowdown in hiring and economic growth will keep price pressures in check and necessitate rate cuts in the near future.
Major investment businesses reduced their expectations for this year's rate decreases ahead of the Fed meeting this week.
Goldman Sachs reduced its 2024 decrease projection from a full percentage point to three-quarters of a point. According to Vanguard's senior economist for the Americas, Roger Aliaga-Diaz, "it's entirely possible that the Fed may not be in position to cut rates this year" given the recent statistics and the "cautious" actions of the Fed.
The chief economist at Pantheon Macroeconomics, Ian Shepherdson, contended that households with depleted savings were now "exposed" more fully to the Fed's tight credit policies. Shepherdson was among the first to accurately predict the dramatic softening of inflation over the course of last year, which forms the basis of the now widely accepted "soft-landing" thesis. Furthermore, according to recent surveys of small businesses, hiring may perhaps slow down significantly in the upcoming months.
Powell has also been barraged with requests for rate cuts by certain Democrats in the US Congress. Lawmakers contended in an open letter dated March 18 to the head of the U.S. central bank that maintaining monetary policy at this tight level was unnecessary and would jeopardise the ongoing economic expansion, given that headline inflation, as measured by the Fed's preferred metric, the personal consumption expenditures price index, was 2.4% in January.
The housing market, in particular, "is facing major imbalances" between supply and demand, they wrote in a letter signed by senator Elizabeth Warren of Massachusetts, a frequent critic of Powell, and other members of the Congressional Progressive Caucus. They claimed that these imbalances won't be resolved by high interest rates and thus discourage home and flat construction.
Whether a recent increase in productivity or shifts in the labour supply have raised the economy's potential, whether underlying interest rates have also increased, and whether it is time to slow the monthly decline in the central bank's massive holdings of US Treasuries and other assets are among the other issues the Fed is debating and which may become clear at the end of this week's meeting.
The crucial choice, though, is when to start the "pivot" towards rate reductions, which has been in progress since late last year.
Whether a recent increase in productivity or shifts in the labour supply have raised the economy's potential, whether underlying interest rates have also increased, and whether it is time to slow the monthly decline in the central bank's massive holdings of US Treasuries and other assets are among the other issues the Fed is debating and which may become clear at the end of this week's meeting.
The crucial choice, though, is when to start the "pivot" towards rate reductions, which has been in progress since late last year.
The same kinds of analyses are being conducted by central banks all over the world as they engineer a historic shift in the financial landscape away from years of almost zero or even negative interest rates to a period in which many analysts predict that borrowing costs will continue to be higher than the rate of inflation, a key benchmark that indicates that borrowing has a "real" cost.
In joining the global tightening of monetary policy sparked by the COVID-19 pandemic and other factors that led to a worldwide breakout of rising prices, the Bank of Japan ended its experiment with negative interest rates on Tuesday, potentially ending the world's experiment as well. It did this by approving its first increase in borrowing costs in 17 years.
If Powell follows his recent pattern, he will probably take a moderate stance on Wednesday, acknowledging that inflation is still sticky while also upholding the central bank's baseline expectation that price pressures will eventually start to ease, if slowly, and allow interest rates to decline.
The senior U.S. economist at Oxford Economics, Ryan Sweet, wrote this week that the Fed "will remain noncommittal about the timing of the first rate cut as inflation has surprised to the upside and there are no glaring fissures in the economy." He stated that if there is a shift in the view, it would be towards fewer and later cutbacks.
"Though the Fed knows that disinflation is in the pipeline, risk management could lead them to favor underpromising on rate cuts this year and potentially overdelivering," he said.
(Source:www.investing.com)
Rather, they have been hit hard by the skyrocketing costs of services, the unexpectedly strong growth in employment, and the unpredictably rapid rise in housing expenses.
Their main concern, which is quite different from confidence, is whether or not the Fed's policy rate needs to remain in the current range of 5.00% to 5.25% for a longer period of time than investors, consumers, politicians, and even U.S. central bank officials had anticipated. The two-day meeting ends on Wednesday.
Following a historic wave of strong monetary tightening brought on by inflation reaching a 40-year peak, that range was established in July of last year. New economic forecasts and a monetary policy statement are scheduled to be released at 2:00 p.m. EDT (1800 GMT). These will reveal whether policymakers maintain their December outlook, which was predicated on the assumption that inflation would continue to decline, and whether they still intend to lower the policy rate by 0.75% this year.
Fed Chair Jerome Powell will discuss the new policy statement in detail at a press conference that follows the meeting. He will also field questions regarding whether his recent statement that the U.S. central bank was "not far" from deciding to cut interest rates still stands in the face of unexpectedly rapid price increases.
The statement's continued use of the term "elevated," which the Fed has employed during the current tight credit phase and may drop to hint at impending rate decreases, is another crucial point.
Powell will face pressure from both sides of the debate: some believe that inflation is starting to settle at levels that are too high to ignore, while others believe that the impending slowdown in hiring and economic growth will keep price pressures in check and necessitate rate cuts in the near future.
Major investment businesses reduced their expectations for this year's rate decreases ahead of the Fed meeting this week.
Goldman Sachs reduced its 2024 decrease projection from a full percentage point to three-quarters of a point. According to Vanguard's senior economist for the Americas, Roger Aliaga-Diaz, "it's entirely possible that the Fed may not be in position to cut rates this year" given the recent statistics and the "cautious" actions of the Fed.
The chief economist at Pantheon Macroeconomics, Ian Shepherdson, contended that households with depleted savings were now "exposed" more fully to the Fed's tight credit policies. Shepherdson was among the first to accurately predict the dramatic softening of inflation over the course of last year, which forms the basis of the now widely accepted "soft-landing" thesis. Furthermore, according to recent surveys of small businesses, hiring may perhaps slow down significantly in the upcoming months.
Powell has also been barraged with requests for rate cuts by certain Democrats in the US Congress. Lawmakers contended in an open letter dated March 18 to the head of the U.S. central bank that maintaining monetary policy at this tight level was unnecessary and would jeopardise the ongoing economic expansion, given that headline inflation, as measured by the Fed's preferred metric, the personal consumption expenditures price index, was 2.4% in January.
The housing market, in particular, "is facing major imbalances" between supply and demand, they wrote in a letter signed by senator Elizabeth Warren of Massachusetts, a frequent critic of Powell, and other members of the Congressional Progressive Caucus. They claimed that these imbalances won't be resolved by high interest rates and thus discourage home and flat construction.
Whether a recent increase in productivity or shifts in the labour supply have raised the economy's potential, whether underlying interest rates have also increased, and whether it is time to slow the monthly decline in the central bank's massive holdings of US Treasuries and other assets are among the other issues the Fed is debating and which may become clear at the end of this week's meeting.
The crucial choice, though, is when to start the "pivot" towards rate reductions, which has been in progress since late last year.
Whether a recent increase in productivity or shifts in the labour supply have raised the economy's potential, whether underlying interest rates have also increased, and whether it is time to slow the monthly decline in the central bank's massive holdings of US Treasuries and other assets are among the other issues the Fed is debating and which may become clear at the end of this week's meeting.
The crucial choice, though, is when to start the "pivot" towards rate reductions, which has been in progress since late last year.
The same kinds of analyses are being conducted by central banks all over the world as they engineer a historic shift in the financial landscape away from years of almost zero or even negative interest rates to a period in which many analysts predict that borrowing costs will continue to be higher than the rate of inflation, a key benchmark that indicates that borrowing has a "real" cost.
In joining the global tightening of monetary policy sparked by the COVID-19 pandemic and other factors that led to a worldwide breakout of rising prices, the Bank of Japan ended its experiment with negative interest rates on Tuesday, potentially ending the world's experiment as well. It did this by approving its first increase in borrowing costs in 17 years.
If Powell follows his recent pattern, he will probably take a moderate stance on Wednesday, acknowledging that inflation is still sticky while also upholding the central bank's baseline expectation that price pressures will eventually start to ease, if slowly, and allow interest rates to decline.
The senior U.S. economist at Oxford Economics, Ryan Sweet, wrote this week that the Fed "will remain noncommittal about the timing of the first rate cut as inflation has surprised to the upside and there are no glaring fissures in the economy." He stated that if there is a shift in the view, it would be towards fewer and later cutbacks.
"Though the Fed knows that disinflation is in the pipeline, risk management could lead them to favor underpromising on rate cuts this year and potentially overdelivering," he said.
(Source:www.investing.com)
