After pausing in June, the US Federal Reserve is widely expected to hike interest rates again on Wednesday, adopting its most restrictive monetary stance for 22 years despite recent signs of slowing inflation.
After 10 consecutive hikes in just over a year, the Fed halted its aggressive campaign of monetary tightening last month to give policymakers more time to assess the health of the US economy, and the impact of recent banking stresses on lending conditions.
In the weeks since, positive upgrades to economic growth and cooler inflation data have reinforced the likelihood that the Fed’s rate-setting committee will vote for a quarter percentage-point hike on July 25-26.
This would raise the federal funds rate to a range between 5.25 and 5.5 percent — its highest level since 2001.
“If I had to bet, I would bet they would raise the Fed funds rate 25 basis points at the next meeting,” Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics (PIIE), told AFP.
“The cooling of the economy is only happening slowly,” Bank of America’s chief US economist Michael Gapen wrote in a recent investor note.
“We think most committee members believe further rebalancing of supply and demand is needed to ensure disinflation will continue,” he added, explaining why he expects another hike on Wednesday.
Futures traders now assign a probability of more than 99 percent that the Fed will hike its base rate by 25 basis points at its next meeting, according to CME Group
While a July rate hike is now widely expected, questions remain about how much further the Fed will need to go this year to bring inflation back down to its long-term target of two percent.
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