The Federal Reserve is likely to stop increasing interest rates & could even reduce them

The Federal Reserve is likely to stop increasing interest rates & could even reduce them

Inflation rose at its slowest annual rate in two years in April, according to the latest data from the Bureau of Labor Statistics. This has led Wall Street to speculate that the Federal Reserve's Jerome Powell will end the most aggressive interest rate increases in four decades when they meet again in June.

The Federal Open Market Committee (FOMC) is likely to keep interest rates the same for a while & prices are expected to decrease in the upcoming months as supply increases & demand decreases. This is according to a team of economists from Wells Fargo.

The Consumer Price Index (CPI)

The Consumer Price Index (CPI)

In April, the Consumer Price Index (CPI) showed that overall inflation increased by 0.4% compared to the previous month & 4.9% compared to the same time last year. This was slightly lower than what experts had predicted & less than the 5.0% annual increase reported in March.

At his press conference on May 3, Federal Reserve Chairman Jerome Powell indicated that the Fed would be taking a "hard pause" on raising interest rates. He clarified that this does not necessarily mean no more rate increases in the future, as the statement omitted language about expecting additional hikes.

The Fed interest rates

The Fed interest rates

At the May meeting, the Federal Reserve raised interest rates by 0.25%, bringing the federal funds rate to its highest level since 2007. This marks the 10th consecutive increase in rates in this cycle of tightening credit conditions. Investors are now watching to see when the Fed will pause & stop raising rates, as higher interest rates are beginning to take effect.

Reasons to Stop Increasing Rates

• Analysts at Bank of America suggest that the Federal Reserve should not raise interest rates in June, & there is no need to lower them either.
• At the next meeting in June, analysts expect the Federal Reserve to maintain current interest rates. They anticipate that the Fed will begin to reduce interest rates sometime in 2021.
• The markets are predicting three rate cuts of 25 basis points in 2023, & a total of 160 basis points cuts until the end of 2024.
• The analysts at the bank stated that the near-term risk to the policy path is still present due to inflation being higher than double the Fed's target rate & unemployment being lower than what each FOMC participant estimates as the natural rate.
• The most recent economic data suggests that the Federal Reserve will likely keep interest rates at high levels, rather than cutting them. However, if a recession were to occur, this could cause the Fed to shift its stance & lower rates. At present, they seem content to accept a moderate slowdown in order to bring inflation back under control.
• Recent economic data suggests that the labor market is weakening & inflation is decreasing.
• Inflation is decreasing, but it is happening slowly. We expect that the labor market must change in order to get inflation back to the Federal Reserve's target of 2%. It is not too late & there are still opportunities for progress.
• Gregory Daco, chief economist at EY, suggested that the inflation report may indicate a trend towards monetary tightening; however, upon further examination of the details of the report, he believes there is potential for a pause in interest rate increases.

The effects of the banking crisis on society.

The effects of the banking crisis on society.

Concerns are mounting that the coming credit crunch could cause a recession. Some economic experts think it might have an unclear effect, while others believe it could reduce inflation.

The US has seen high inflation, prompting the Federal Reserve to raise interest rates over the past year. However, monetary policy officials have suggested that when the rate hike cycle ends, they will be more conservative in their approach to credit.

Anna Wong, the chief US economist at Bloomberg Economics, said that the April consumer price index report is not very optimistic, but it does not necessarily mean that the Federal Reserve will raise rates again in June. The effects of tightening credit to reduce inflation are still unclear. However, the gradual decrease in core inflation emphasizes how probable it is for the Fed to cut interest rates this year.