USA: 3 key signs that the Fed could raise interest rates again

Those responsible for monetary policy in the United States Federal Reserve received a dose of economic data unexpectedly strong inflation that bolstered the case for further monetary policy tightening to reduce persistently high inflation.

Consumer spending, which rose 0.8% last month from March, was welcome news in showing the economy is not on the verge of recession, but unnerved politicians who are looking for a slowdown that could ease upward pressure. about prices.

And a rise in core inflation to 4.7%, from a pace of 4.6% in March, underscored the Fed’s less-than-steady progress in fighting inflation. The US central bank is targeting an inflation target of 2%.

Along with what appeared to be some progress in Washington on a deal to raise the debt limit and avoid a catastrophic default, Powell said he could do so as early as this month.

“Right now, when I look at the data and what’s happening with the inflation numbers, I think we’re going to have to tighten a little bit more,” Cleveland Fed President Loretta Mester told CNBC. In March, Mester already expected the Fed to raise the policy rate beyond its current range of 5.00%-5.25%.

But, in a tacit nod to the dovish wing of the Fed’s policy committee that favors a more wait-and-see approach, he also said it’s too early to pre-commit to a June hike. “We have made progress; now it is this calibration exercise, and that is what is difficult” he assured.

Interest rate futures traders see less subtlety in the numbers and are now betting that the Fed will offer an eleventh raise June interest rate back-to-back, a reversal of bets on a June pause earlier in the day and on most days since the Fed last rate hike on May 3.

Analysts at LHMeyer, who previously thought the Fed was done raising rates, said on Friday they now see the Fed raising its benchmark two more notches, to 5.6%, before pausing.

A jump is still possible

A rate hike next month is not a done deal. Ahead of the Fed meeting on June 13-14, there is a key reading on the labor market due out next Friday and new inflation data is expected on June 13.

Fed policymakers also say they are watching credit conditions closely, though Mester said on Friday he sees no worrying “extra” tightening so far due to recent regional bank failures.

However, expectations are rising that even if the Fed leaves rates unchanged in June, it will pull the trigger in July. The odds in the futures markets are three to one in favor of a rate hike by then.

Fed Governor Christopher Waller, one of the Fed’s most aggressive voices, floated that idea earlier this week. While key data in the coming weeks, as well as uncertainty about credit conditions, could temporarily support rate maintenance, he said, the lack of progress on inflation points to the need for further tightening.

Other Fed policymakers have echoed that aggressive call. “Inflation is not showing much sign of cooling so far, which suggests we may have more work to do on monetary policy,” Minneapolis Fed President Neel Kashkari told Reuters on Monday.

Households project inflation to ease next year, to 4.2%, a University of Michigan survey showed Friday. The Fed believes that expectations about future price pressures have a strong influence on current readings.