Over the past 16 months, the Federal Reserve has long played down inflation fears and downplayed interest rate surprises.
The central bank’s Federal Open Market Committee (FOMC), which decides monetary policy, is set to begin deliberations on Tuesday, and the trend is likely to continue the next day, with many gnashing teeth about a 25 basis point rate hike and the continued threat of inflation.
The CME Rate Watch tool now puts a 98% chance of another quarterly point hike, with the Fed Funds rate rising into the 525-550 basis point range, the highest in almost 17 years. The FOMC suspended 15 months of monetary tightening last month, prompting investor hopes that it might be dovish for the time being. But the central bank said in a statement after the decision that inflation concerns remained and that further rate hikes were possible.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the impact of incoming information on the economic outlook,” he said. FOMC said. “The Committee stands ready to adjust its monetary policy stance appropriately if risks arise that impede the Committee’s achievement of its objectives,” he said. The Committee’s assessment takes into account a wide range of information, including labor market conditions, inflationary pressures and expectations, as well as developments in financial and international affairs.
The cryptocurrency market has shown strange resistance to recent macroeconomic rhetoric. Bitcoin has been trading in the $29,000 to $31,500 range for most of the past two months, although there have been some sharp declines. It has recently hovered around $29,100, down more than 3% over the past 24 hours. “We need a new catalyst to get Bitcoin traders excited,” Edward Moya, senior market analyst at forex market maker Oanda, said in a note Monday.
The Conference Board will release its latest Consumer Confidence Index (CCI) on Tuesday, which reflects sentiment on the economy. Thursday’s unemployment claims report will provide the latest data on economic growth, but Friday’s personal consumption expenditures (PCE), the Fed’s favorite measure of inflation, may or may not corroborate the Fed’s latest move.
The Fed will take the latest steps to bring inflation down to its long-standing target of 2%. June’s reading of 3% continued to trend positively, slightly higher than expected and down from 4% in May. Just a year ago, inflation was raging at 9%, he said. Still, the Fed remains concerned about a booming job market with rising inflation and a persistently high core PCE. A week after the Fed halted rate hikes, Fed Chairman Jerome Powell said in remarks to the House Financial Services Committee that “almost all FOMC participants expect more rate hikes to be appropriate before the end of the year.”
consumer confidence index
last month, CCI soars The index rose seven points from May to 109, its highest level since January 2022, as consumers rejoiced in a vibrant job market and a reduced likelihood of a recession. Current consensus is for CCI to rise to 112. A potentially bitter note: The Conference Board survey also found that consumers haven’t ruled out a recession entirely.
For analysts and investors who had hoped at least for signs of a cooling job market, initial jobless claims worsened last week. Initial jobless claims for the week ending July 15 came in at 228,000, down nearly 9,000 from the previous week and lower than expected. The number of new applications is expected to rise to 235,000 in the week ending July 22, but that figure is unlikely to disrupt asset markets.
Durable goods orders rose 1.7% in May for the third month in a row, another sign that the U.S. economy is in nothing but contraction. A 1.5% increase is expected when the Census Bureau releases June data.
Personal consumption expenditure
PCE has fallen steadily over the past year, which is also a positive sign for inflation watchers. The year-on-year rate in May was 3.8, down from over 5% at the beginning of the year. Core PCE, which excludes more volatile food and energy costs, has hovered between 4.6% and 4.7% over the past three months and is expected to hit 4.2% in June, but the Fed worries about a less optimistic trend.