the fed
Markets are awaiting a decision from the Federal Reserve, which meets on Tuesday and Wednesday, to determine the fate of interest rates, with speculation the central bank will raise rates for the first time since March 2022 after 10 straight hikes, the last being last month.
Since March 2022, the Fed’s key interest rate has been raised by 5 percentage points to a range of 5% to 5.25%.
Analysts say the Fed is moving closer to a “fix” at its next meeting “to monitor the impact on the real economy and most importantly avoid triggering a recession, especially since the banking crisis in the spring has made banks more cautious about lending. “
The Fed’s decision is expected on Wednesday evening. Afterwards, Foundation Chairman Jerome Powell will hold a news conference.
25 bps over two sessions
Jonathan Aronson, a professor at the University of Southern California, believes that whether it is the next meeting or the two immediately following meetings, the Fed will take measures to raise interest rates by 25 basis points.
In a statement to Sky News Arab Economics, he said the Fed would raise rates at its next meeting if they set rates at its next meeting, adding that “the consensus now is that it will increase by another quarter of a point.” At the next meeting or a meeting thereafter.”
Fed officials have said interest rates are likely to remain at current levels at their June 13-14 meeting before preparing to raise rates again later this summer.
– EY chief economist Gregory Daco said that expecting intense debate within the committee, “if there are many hawks present, a unanimous vote for a moratorium is unlikely”, in a previous statement.
no surprises
In an exclusive statement to Sky News Arab Economics, economic thinker and Occidental University economics professor Michael Parkin said the Fed faces two paths; Last meeting in May.
The MPC will also update its forecasts for GDP growth, unemployment and inflation. It will determine how far prices can rise.
Parkin thinks the Fed’s decision is unlikely to be a surprise, and he thinks the first scenario (keep interest rates unchanged) is the most likely, keeping interest rates between 5% and 5.25%.
The economic thinker and professor of economics at Western University believes that the Fed will not adjust its policy to “cut interest rates” anytime soon, explaining that “there will be no interest rate cut this year … and it is unlikely to occur in the first quarter of 2024.”, And Stressed that “inflation must be fixed at 2% before cutting rates.”
Inflation, as measured by the Fed’s preferred index of personal consumption expenditures, rose again to 4.4% in April.
In its latest report, “Global Economic Prospects,” the World Bank raised its forecast for global economic growth this year to 2.1 percent from 1.7 percent in January, compared with a previous forecast of 3.1 percent. The bank revised its outlook for the U.S. economy in 2021 Growth forecasts, it raised its growth to 1.1% in 2023 from 0.5% in January, but also halved its forecast for the world’s largest economy in 2024 to 0.8% from 1.6%.
slowing inflation
Additionally, Williams College economics professor Kenneth Kutner told Sky News Arab Economics:
* I don’t expect any surprises from the upcoming Fed meeting.
* Some modest rate hikes may be on the cards due to unexpectedly strong jobs data.
* But as inflation appears to have slowed, Fed may pause rate hikes as expected (hold).
Regarding the future trend for the rest of 2023 and next year, Kuttner said whether and when the Fed will cut the federal funds rate, “a lot depends on economic developments, so it is difficult to predict now.”
He added, “As long as jobs continue to grow, I think the Fed will be inclined to keep rates on hold…unless it looks like a recession is imminent, it won’t cut rates…although there’s no obvious Signs, especially job growth, are improving, but anything can happen in six months.”
US employment rose again in May.
– April added 339,000 jobs, beating expectations and well ahead of 294,000.
Meanwhile, the unemployment rate rose to 3.7% from a record low of 3.4%.
Wages rose slightly, with average hourly earnings rising 0.3%, slightly down from 0.4% in April, according to government data.
— U.S. President Joe Biden commented on the data, saying, “Today is a good day for the American economy and American workers.” He added that the unemployment rate has fallen below 4% for 16 consecutive months.
“I think we’ll see comments next week,” EY economist Lydia Bosor said earlier, considering members of the Fed’s monetary policy committee have “sufficient support” to make it happen, according to AFP.
Fed board member and vice-chairman-designate Philip Jefferson said in comments that this “will make it possible to look at more data before deciding” on the size of rate hikes that are still necessary.
Muhammad Ali Yassin: The Fed has made mistakes more than once
currency pressure
Ahmed Moati, executive director of VI Markets, said in an exclusive statement to “Economy Sky News Arabia” that market expectations were tilted towards fixed rates, but in many cases the Fed violated those expectations.
He added: “The Fed continues to confirm that inflation is running above target and employment numbers are high, and while some of these numbers are largely positive, others remain negative, especially on unemployment benefits (which has seen Growth in the (latest weekly data release) beat expectations, and then the apparent inconsistency in the jobs data overwhelmed the Fed.”
The CEO of VI Markets believes that in all cases, the Fed will be inclined to continue monetary tightening (the sum of measures taken by central banks to reduce the demand for money), whether by raising interest rates (at a pace of 25 basis points) Or through a credit crunch. Especially since Federal Reserve Chairman Jerome Powell’s statements in this regard have been clear, prioritizing lowering inflation.
It’s worth noting that the credit crunch stemmed from the U.S. banking crisis, starting in Silicon Valley, with banks tightening lending to investors, and given the Fed’s goal of reducing market liquidity, “therefore, in all cases, regardless of interest rates Fixed or raise interest rates, the Fed is still pursuing a monetary tightening policy.
“Financial stability tools help stabilize conditions in the banking sector. On the other hand, developments there help tighten credit conditions and could affect growth, employment,” the Fed chairman told a monetary conference in Washington last month. and inflation.”
He continued, “As a result, we will not need to raise interest rates to the high levels that we were previously aiming to achieve to fight inflation.”