The Federal Reserve is about to show how united politicians have come up with a higher peak in interest rates than previously reported as they continue to fight inflation, the highest in decades.
Following a Nov. 1-2 policy-making meeting of the US central bank’s Federal Open Market Committee, Chairman Jerome Powell said rates are likely to rise higher than the FOMC’s September quarterly forecasts indicated.
The Fed will publish the minutes of the meeting on Wednesday in Washington.
After the meeting, Powell attributed the Fed’s move to a higher base rate peak to a disappointing inflation report that was released a few weeks after the release of the September forecasts. How the FOMC sees the relationship between interim inflation data and the ultimate rate destination is critical for traders and investors. Forecasts will be announced at the next meeting on December 13-14.
Some economists believe that there will be unity around raising rates, but not that rates should be higher than forecast at the September meeting.
This year, the Fed has been aggressive in tightening monetary policy, which included three-quarters of a percentage point increase, three times the usual amount.
With the base rate now just below 4%, Powell suggested that the central bank would likely move on to a modest rate hike as early as December.
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More important for financial markets and the economy is when Fed officials are satisfied enough with inflation progress to stop raising rates entirely.
The November 10 Labor Department report on consumer prices said inflationary pressures may have finally begun to ease. But that may not be enough to negate the bad news a month earlier that prompted Powell’s announcement of a higher terminal rate.
Mark Giannoni, the chief US economist at Barclays Plc in New York, said continued strength in the labor market is another reason for the Fed to raise its rate outlook.
A comparison of monthly vacancy data before and after the November meeting showed that the number of vacancies is growing again.
For now, traders and investors expect the Fed to be in favor of a half-point rate hike in December, making it a target range of 4.25% to 4.5%, with rates peaking around 5% next year, according to futures contract prices. markets. This compares to a peak of 4.5% to 4.75% in the Fed’s September forecasts.
Cleveland Fed President Loretta Mester and her San Francisco counterpart Mary Daly reaffirmed those expectations in public comments on Monday.
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