Here’s what to expect from today’s Federal Reserve announcement

The Federal Reserve has not made a firm decision on whether it will stop raising interest rates, Chairman Jerome Powell said. Powell added that expectations for long-term inflation remain “well anchored,” and that the central bank remains focused on promoting maximum employment and strengthening purchasing power. Federal Reserve chair Jerome Powell said on Wednesday that while inflation has improved over the last year, the fight to tame price pressures is far from over. The initial signs of weakness in the labor market suggest that the path to a “soft landing” for the U.S. economy is not off the table, Fed Chair Jerome Powell said. Further information on each exchange’s rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX. But as long as interest rates are high, borrowers are unlikely to feel any relief in their wallets.

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Few surprises in the Fed’s latest statement, says Bleakley Financial Group

“It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won’t cut rates.” Credit card rates have hit a record high, while home equity lines of credit have hit the highest since 2001, according to interest rate data from Bankrate. That borrowing environment is unlikely to change, absent any rate cuts from the Fed. That’s partially because it was the moves were more obvious to policymakers. When inflation is at a 40-year high and interest rates are still historically low, policymakers know they need to slow down the economy.

During the meeting, members discuss developments in the local and global financial markets, as well as economic and financial forecasts. All participants—the Board of Governors and all 12 Reserve Bank presidents—share their views on the country’s economic stance and converse on the monetary policy that would be most beneficial for the country. After much deliberation by all participants, only designated FOMC members get to vote on a policy that they consider appropriate for the period. The decision Wednesday marked the Fed’s 10th consecutive rate increase aimed at battling inflation and will bring its benchmark federal-funds rate to a range of 5% to 5.25%, a 16-year high.

No U.S. Recession in Sight

We can measure whether a Fed rate hike is being priced-in using Fed funds over a specific time horizon in the future in order to gauge where interest rates are headed. Chart 1 below showcases the difference in Fed funds futures for the front month and August 2023 contracts. The market is all but certain https://forexhero.info/why-interactive-brokers-is-a-brokerage-firm-you-can-rely-on/ that the Federal Reserve will push forward a 25-basis point rate hike this afternoon, bringing its benchmark funds rate to 5% to 5.25%. Investors are awaiting the central bank’s next steps, and they could be rewarded if this interest rate hike is the last one in the Federal Reserve’s tightening cycle.

The interest rate a bank will have to pay to borrow from the Fed is called the discount rate. A lower discount rate will encourage a lower federal funds rate, and vice versa. Using a trio of policy tools, the FOMC can raise or lower the federal funds rate in the US.

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“We are prepared to do more if greater monetary policy restraint is warranted,” Powell said. Powell also said he does not have an “agenda” to continue consolidating banks, adding that he sees value in having banks of different sizes within the system accomplishing different goals. “Wage increases have been moving down, and that’s a good sign. Down to more sustainable levels. … I think the case of avoiding a recession is in my view more likely than that of having a recession,” he added. Investors seemed to have turned their attention to Powell’s comment that the rate-setting committee has “a view that inflation is going to come down not so quickly.” EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age.

Halting rate hikes may be necessary from here to see the Federal Reserve’s tightening move through the system, according to Ronald Temple, chief market strategist at Lazard. What is the likelihood that the Fed will change the Federal target rate at upcoming FOMC meetings, according to interest rate traders? Analyze the probabilities of changes to the Fed rate and U.S. monetary policy, as implied by 30-Day Fed Funds futures pricing data. The division points to how much harder of a decision the Fed’s next moves could become. St. Louis Fed President Jim Bullard described rates as being at the “low end” of sufficiently restrictive, implying that he doesn’t see the Fed’s rate hikes being fully finished as of his June 1 remarks. Cleveland Fed President Loretta Mester, meanwhile, sees no “compelling” reason to pause, according to a May 31 interview with the Financial Times.

What is the FOMC?

This is the “end of the beginning” in the war against higher inflation – yet markets will likely see the beginning of the end, as they are always looking forward. The Federal Reserve has raised rates by a double-dose of 50 bps, below the four triple-dose 75 bps hikes. While borrowing costs are still rising, hopes for them falling are rising.

Federal Reserve Chair Jerome Powell thinks that more data is needed to decide if the fed funds rate is restrictive enough. In March, Fed officials saw price pressures hovering higher than that target through at least 2025. That could complicate investors’ expectations for rate cuts as early as the November meeting. Revealing just how divided the Fed may be moving forward, Fed officials will update consumers and investors on what they’re expecting from the economy and monetary policy through 2025.

Both don’t have an official vote on policy this year, though Mester is currently an alternate if any official is absent. Even amid 500 basis points of tightening, employers have added 4.4 million new jobs over the past 12 months, more than two times faster than the pre-pandemic pace in 2019, Labor Department data shows. Businesses have another almost 10 million job openings, and wages haven’t yet cooled enough for Powell’s liking. Average hourly earnings rose 4.3 percent from a year ago in May, higher than the 3.5 percent pace Powell said would be suitable for 2 percent inflation. Services inflation has barely budged in the first four months of the year, and economists are projecting a new look at those price pressures from May could reveal limited progress.

• Halting rate hikes may be necessary from here to see the Federal Reserve’s tightening move through the system, according to Ronald Temple, chief market strategist at Lazard.
• A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation.
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• Now, the economic outlook is much more uncertain — including how much more of a slowdown is still in the pipeline because of moves officials have already made.