The U.S. Federal Reserve is expected to raise its interest rate once again on Wednesday in an effort to combat inflation.
The projected quarter-percentage point increase would raise the federal funds rate to a range of 5.25 to 5.5 percent, further restricting economic growth as interest rates on loans for homes, cars, and other items march higher. It would be the eleventh increase in about a year and a half and the highest rate since 2001.
However, Wall Street is significantly more interested in Fed Chairman Jerome Powell’s press conference as they search for more hints on the Fed’s inflation fight. Despite indications that inflation is continuing to decline, Powell may leave the door open for at least one more rate hike this year, depending on upcoming economic data releases.
“The real importance of the meeting will be what is said in the statement and the press conference after the meeting,” said Dan North, a senior economist at Allianz Trade. “Everyone will be searching for any clues that the Fed has now finished its job and won’t hike anymore. The Fed funds futures market is leaning heavily that way.”
The labor market has remained very tight despite all odds. The number of jobs available continues to fall short of the demand for workers, which could imbalance salaries and force businesses to boost their pricing to cover the additional labor costs.
“The Fed was lulled into believing that inflation was short-lived in 2021,” said KPMG chief economist Diane Swonk. “Then inflation reversed course and rose. … They don’t want another head fake by declaring victory too soon; they have already eaten crow on that.”
Swonk also noted that financial markets are “front-running the Fed,” which continues to stimulate the economy and runs the risk of reflating the economy at a critical juncture. Investors hope that the central bank will stop raising rates, which have given financial markets a boost recently.
“That leaves the Fed battling financial markets along with inflation,” she said. “Those who think the Fed will cave to the pressure of financial markets, short of a full-fledged crisis, have not been paying attention to the Fed for the last year. They are not caving.”
