The Next Fed Meeting Could Be the Most Hawkish One Yet
Key takeaways
- The next Fed meeting is at the end of July, where the central bank is widely expected to raise interest rates again
- Fed chair Jerome Powell has been consistently hawkish in recent comments
- Strong economic data and core inflation all points towards sticky inflation, which is harder to tackle
All eyes have been on the Fed for nearly a year — we wonder if they’re bored of the attention. Unfortunately for them, that isn’t set to subside any time soon as inflation remains the reluctant star of the show for the U.S. economy. We’ve got the lowdown on the next Fed meeting, what might happen, and whether a recession could hit.
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When is the next Fed meeting?
The next Fed meeting occurs at the end of this month, with investors and economists widely expecting the central bank to raise interest rates once more after a June ‘pause’. The CME FedWatch tool currently puts the likelihood of an interest rate hike at 86%.
Fed chair Jerome Powell was keen to show the Fed wasn’t resting on its laurels, commenting at the ECB Forum for Central Banking last week that he wouldn’t rule out consecutive rate rises if the data showed persistent inflation pressures.
Headline CPI is currently at 4% in May, a sharp drop from April’s 4.9% reading, but core inflation (which strips out volatile food and energy prices) fell at a slower rate to 5.3%, down from 5.5% the month before.
Are we facing a recession?
The latest PCE data, which monitors consumer spending, saw headline inflation rise by 3.8% compared to last year, the lowest increase in two years, but the core PCE inflation only dropped to 4.6% and has barely moved in seven months. That indicates inflation is getting sticky and might take longer to knock on the head.
We’re also expecting new jobs data this week, but so far we know that new claims for unemployment benefits fell by the biggest drop in 20 months last week, with 239,000 claims filed — a 26,000 decrease.
As for home sales, new homes have surged over 12% as lack of existing homes on the market and households getting used to higher rates released some of the pent-up demand. There were 763,000 units sold in May, far higher than the 675,000 expected.
So, are we facing a recession? It’s still too early to tell, but sticky inflation is certainly concerning the Fed. It’s all but certain we’ll see another rate rise to try and tackle core inflationary pressures.
The bottom line
The Fed has the unenviable position of bringing down inflation by using its only weapon — interest rates -while avoiding a recession. That being said, the U.S. economy is handling rampant inflation better than its global counterparts — so there’s hope that the fabled ‘soft landing’ could come to fruition.
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