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| Urgent: Key Statements from the Federal President and Anticipated Data for Tomorrow |
Urgent: Key Statements from the Federal President and Anticipated Data for Tomorrow
Federal Reserve Chairman Jerome Powell, in the latest statements published today, expects to raise interest rates twice. Powell attributes this expected increase to two main factors: the robust labor market and the inflation rate, which is significantly below the Fed's target of 2%.
During his speech on financial stability at Banco de España, Powell reiterated his previous comments about the strength of the economy. Although he provided reassurances, Powell did not specify the exact timing of the interest rate decision but mentioned relying on monthly updated macroeconomic data.
Regarding the banking pressures that led to the collapse of several US banks last month, Powell mentioned that these pressures could raise interest rates as they reduce credit activity and make lending terms more stringent. Nonetheless, Powell continues to highlight the strength of the labor market and the resultant higher inflation in the service sectors.
Powell emphasizes that there is still a significant distance to cover before inflation returns to its target of 2%.
In the most recent meeting, the Federal Reserve maintained the interest rate at a range of 5% to 5.25% after increasing it for ten consecutive times since March 2022.
Powell stated, "We made this decision while considering the progress we have made in tightening, uncertainties in monetary policy timing, and the potential challenges that may arise from tightening," according to Reuters.
Furthermore, Powell mentioned that "a strong majority of panel participants anticipate raising interest rates two or more times by the end of the year," as reported by Reuters.
The Federal Reserve has four more policy meetings scheduled for this year, with the next one taking place on July 25-26. Currently, the market anticipates a 25 basis points rate hike with over 80% certainty.
According to Powell, the previous rate hikes have already had an impact on business investment and the housing sector, with activity substantially lower than the peak observed last year, despite recent indicators suggesting some recovery.
He added that it will take some time for the wider economy to fully experience the effects of the previous interest rate hikes.
This is particularly true for inflation, which, based on the Fed's preferred measure - personal consumption expenditures, is estimated to have increased by 3.9% last month compared to the previous year. The core indicator, which excludes food and energy prices, is projected to have risen by 4.7%, according to Powell.
The official numbers for May will be released on Friday. If these estimates prove accurate, it would indicate a lack of progress in addressing underlying price pressures over the past six months. In such a scenario, it would suggest that the Fed still needs to increase interest rates despite the strong economy's limited response to tightening monetary policy.