Here's why the Fed's next big rate hike may be its last
(The Hill) — The
Analysts and economists are confident the Fed will hike its baseline interest rate range by another 0.75 percentage points at the end of a Wednesday meeting.
It may also mark a turning point as the Fed faces growing pressure to take its foot off the brakes of the economy.
Fed Chair
"We see a decent chance that core inflation and wage growth will slow at the same time, more or less, making it much more likely that the Fed's final hike will be in December," wrote
"We see enough straws in the wind now to think that the economy is at a real inflexion point," Shepherdson wrote.
Even so, inflation has remained stubbornly high, and Powell has warned that the bank will keep up the pressure until price growth shows clear signs of falling.
"These forces are not yet fully visible in the hard data which matter most to markets and the Fed," Shepherdson continued.
Prices were up 6.2 percent over the past year, as measured by the personal consumption expenditures price index, the Fed's preferred gauge of inflation. It remains well above the Fed's target for 2 percent annual inflation.
The consumer price index (CPI), another key gauge of inflation, was up 8.2 percent on the year in September. While the CPI is not the Fed's primary inflation gauge, the bank still pays close attention to it.
"While the headline Consumer Price Index (CPI) has fallen from the 40-year record of 9.1% set in June to September's 8.2%, that's still appallingly high," wrote
"
Fed officials have decisively chosen the latter, insisting a recession caused by high-interest rates would be less damaging than one caused by its refusal to bring inflation down.
"We think that a failure to restore price stability would mean far greater pain later on," Powell said after the Fed hiked rates in September.
"The record shows that if you postpone, that delay is only likely to lead to more pain," he continued, referring to the grueling recession the Fed triggered to bring inflation down from much higher levels during the 1980s.
The bank is also facing more pressure to prove it can curb inflation after refusing to hike rates in 2021 while price growth accelerated, insisting it would come back down soon enough.
"Committing to slowing down prematurely without seeing meaningful progress on inflation could result in another challenge to the Fed's credibility if inflation surprises to the upside and [Fed officials] are compelled to backtrack," wrote economists at investment bank Nomura in a Monday research note.
"We believe the Fed will want clear and compelling evidence that inflation has indeed made progress before they commit to slowing the pace of rate hikes," they added.
Fed poised to hike rates by 0.75 percentage points for fourth time
U.S. Federal Reserve prepares sixth consecutive interest rate hike to try to curb inflation
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News