Teh One Who Knocks
11-02-2022, 10:05 AM
By Megan Henney | FOXBusiness
https://i.imgur.com/gApvqoD.png
The Federal Reserve is set to escalate its battle against inflation this week with another substantial interest rate hike, risking deeper economic pain for millions of households and businesses nationwide.
With inflation accelerating more than expected in September and the job market still growing at a healthy clip, the U.S. central bank is widely expected to approve another 75-basis-point rate hike at the conclusion of its two-day meeting on Wednesday.
Traders are pricing in a more than 87% chance of another 75-basis-point hike at the conclusion of the meeting, according to the CME Group's FedWatch tool, which tracks trading. Only 12% think the Fed will go with a half-point hike instead. The Fed has taken no action to dissuade that expectation.
But Wall Street is even more laser-focused on what Fed Chairman Jerome Powell could signal comes next in the central bank's inflation fight during his 2:30 p.m. ET press conference Wednesday. Investors are eagerly looking for signs that the Fed is taking its foot off the brake and slowing its aggressive rate-hike pace. Markets have rallied in recent days on hopes that the Fed could soon pivot from its ultra-aggressive path.
However, the staying power of high inflation and the continued strength of the labor market has dashed some hopes of a Fed pivot.
Inflation ran even hotter than expected last month, with the consumer price index, a broad measure of the price for everyday goods that includes gasoline, groceries and rents, increasing 0.1% in August from the previous month, dashing hopes for a slowdown. On an annual basis, inflation is running at 8.3% — a nearly 40-year high.
"A 75-basis-point rate hike on Wednesday should be fully expected as the unemployment rate is still at a 50-year low and there is nothing to suggest that Powell will soften his stance on fighting inflation," said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser. "The stock market surge since the last Fed meeting in mid-September only strengthens Powell's case for continuing to tighten financial conditions."
Central bank policymakers already approved five consecutive interest rate hikes, including back-to-back 75-basis-point increases in June, July and September, putting the federal funds rate range between 3.00% and 3.25%, nearing restrictive territory. Investors expect the Fed to hold rates in a restrictive range for some time until there is clear evidence that inflation has subsided and will not return.
Economic projections from the Fed's last meeting show that policymakers projected a peak rate of 4.6% next year, but that could increase depending on forthcoming economic data. Goldman Sachs now expects rates to peak at 5% in March.
But the efforts to combat inflation carry a potential risk of recession, and a growing number of economists and Wall Street firms are forecasting an economic downturn this year or next as the Fed tries to thread the needle between curbing inflation without crushing growth.
https://i.imgur.com/nRHcneG.png
"It’s too hard," Tomas Philipson, a University of Chicago economist and the former chair of the White House Council of Economic Advisers, told FOX Business. "It’s not that the [Fed is] not capable. It’s just that it’s impossible to do. It’s like planning a wedding on a sunny day next summer. You can’t forecast the weather, and you can’t forecast the economy."
Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago to more than 6.0%, and some credit card issuers have ratcheted up their rates to 20%.
However, there's a silver lining in higher rates for savers: some banks and credit unions will increase their savings rate during Fed hikes, making it a good chance for customers — particularly retirees living off of their savings — to earn more.
https://i.imgur.com/gApvqoD.png
The Federal Reserve is set to escalate its battle against inflation this week with another substantial interest rate hike, risking deeper economic pain for millions of households and businesses nationwide.
With inflation accelerating more than expected in September and the job market still growing at a healthy clip, the U.S. central bank is widely expected to approve another 75-basis-point rate hike at the conclusion of its two-day meeting on Wednesday.
Traders are pricing in a more than 87% chance of another 75-basis-point hike at the conclusion of the meeting, according to the CME Group's FedWatch tool, which tracks trading. Only 12% think the Fed will go with a half-point hike instead. The Fed has taken no action to dissuade that expectation.
But Wall Street is even more laser-focused on what Fed Chairman Jerome Powell could signal comes next in the central bank's inflation fight during his 2:30 p.m. ET press conference Wednesday. Investors are eagerly looking for signs that the Fed is taking its foot off the brake and slowing its aggressive rate-hike pace. Markets have rallied in recent days on hopes that the Fed could soon pivot from its ultra-aggressive path.
However, the staying power of high inflation and the continued strength of the labor market has dashed some hopes of a Fed pivot.
Inflation ran even hotter than expected last month, with the consumer price index, a broad measure of the price for everyday goods that includes gasoline, groceries and rents, increasing 0.1% in August from the previous month, dashing hopes for a slowdown. On an annual basis, inflation is running at 8.3% — a nearly 40-year high.
"A 75-basis-point rate hike on Wednesday should be fully expected as the unemployment rate is still at a 50-year low and there is nothing to suggest that Powell will soften his stance on fighting inflation," said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser. "The stock market surge since the last Fed meeting in mid-September only strengthens Powell's case for continuing to tighten financial conditions."
Central bank policymakers already approved five consecutive interest rate hikes, including back-to-back 75-basis-point increases in June, July and September, putting the federal funds rate range between 3.00% and 3.25%, nearing restrictive territory. Investors expect the Fed to hold rates in a restrictive range for some time until there is clear evidence that inflation has subsided and will not return.
Economic projections from the Fed's last meeting show that policymakers projected a peak rate of 4.6% next year, but that could increase depending on forthcoming economic data. Goldman Sachs now expects rates to peak at 5% in March.
But the efforts to combat inflation carry a potential risk of recession, and a growing number of economists and Wall Street firms are forecasting an economic downturn this year or next as the Fed tries to thread the needle between curbing inflation without crushing growth.
https://i.imgur.com/nRHcneG.png
"It’s too hard," Tomas Philipson, a University of Chicago economist and the former chair of the White House Council of Economic Advisers, told FOX Business. "It’s not that the [Fed is] not capable. It’s just that it’s impossible to do. It’s like planning a wedding on a sunny day next summer. You can’t forecast the weather, and you can’t forecast the economy."
Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago to more than 6.0%, and some credit card issuers have ratcheted up their rates to 20%.
However, there's a silver lining in higher rates for savers: some banks and credit unions will increase their savings rate during Fed hikes, making it a good chance for customers — particularly retirees living off of their savings — to earn more.