The Federal Reserve is likely to agree to a fourth consecutive large interest rate hike when it meets in November as policymakers grow concerned about relentlessly high inflation.
The shift towards a 75 basis point rate hike comes just days later New government data He noted that inflationary pressures in the economy remain strong and unchecked despite increasingly tight monetary policy.
The continued strength of high inflation, along with the continued strength of the labor market, prompted Federal Reserve officials to abandon discussion of a rate hike during their November meeting, according to the New York Times.
Policymakers previously expected they would consider slowing down the aggressive tightening campaign, but were swayed against doing so by a series of heated economic reports, The Times reported.
Traders are pricing in more than a 95% chance of a further 75 basis point hike at the conclusion of the Federal Reserve’s two-day meeting on November 2, according to CME Group’s FedWatch Tool, which tracks trading. Only 4.6% think the Fed will go with a half-point hike instead. The Federal Reserve did not take any action to deter this prediction.
Officials may also take steps to push interest rates higher than they had expected as recently as September as high inflation continues despite higher interest rates. The newspaper said the US central bank expected a peak of 4.6% next year, but that could rise depending on upcoming economic data.
The US central bank embarked on one of the fastest cycles in history to increase borrowing costs and slowing economy. Officials approved a third straight rate hike of 75 basis points in September, raising the federal funds rate to a range of 3.0% to 3.25% – close to restrictive levels – and showing no signs of slowing as they try to crush hyperinflation.
A new Labor Department report last week showed that the Consumer Price Index, a broad measure of the prices of everyday goods including gasoline, groceries and rents, rose 0.4% in September from the previous month and 8.2% year-on-year, much faster than experts. It was expected.
“We haven’t made significant progress yet on inflation,” Fed Governor Christopher Waller said during a recent speech.
In a more disturbing development refers to the primary inflationary pressures The economy remains strong, and core prices, which exclude the most volatile measures of food and energy, rose 0.6% in September from the previous month. Compared to the same time last year, core prices jumped 6.6%, the fastest since 1982.
“The CPI came out hot, effectively ensuring the Fed will raise 75 basis points next month and at least 50 basis points in December,” said Robert Frick, an economist at Navy Federal Credit Union. “And we need to prepare for more bad news in October and November as high oil prices are likely to swing again from a cut to an increase in inflation.”
There is a growing expectation on Wall Street Federal Reserve It will lead to economic deflation because it is raising interest rates at the fastest pace in three decades to keep pace with hyperinflation.
Economic growth actually contracted in the first two quarters of the year, as gross domestic product – the broadest measure of goods and services produced in a country – shrank 1.6% in the winter and 0.6% in spring.
Federal Reserve Chairman Jerome Powell He acknowledged that the central bank would push the economy into recession by raising interest rates quickly, warning that higher rates would cause economic “pain”.
“The chances of a soft landing will likely diminish to the point where policy needs to be more restrictive or restrictive for longer,” Powell told reporters in Washington. “However, we are committed to bringing inflation back to 2%. We believe that failure to restore price stability will mean much more pain.”