As central bank officials convene to deliberate on the current state of inflation, the Federal Open Market Committee’s decision is highly anticipated.
The eagerly awaited Federal Reserve meeting on Tuesday and Wednesday is expected to maintain the status quo with no Fed rate hike in sight
The Fed, which has been gradually Fed rate hikes for over a year, faces a challenging balancing act. On one hand, it aims to curb inflation by keeping rates elevated, but it is also wary of going too far and inadvertently causing an economic downturn. In recent months, inflation has been less predictable compared to the previous year.
In September, consumer price index inflation remained at 3.7% year-on-year, with a modest 0.4% monthly increase, slightly surpassing expectations. The Fed’s preferred metric, the personal consumption expenditures price index, also held steady at 3.4% over the same period, both figures surpassing the Fed’s 2% target but showing progress compared to last year’s peak above 9%.
Most economists and market observers expect that the Fed will maintain its current interest rate levels
Fed Chairman Jerome Powell has hinted that rates will remain unchanged unless clear indications of resurging inflation emerge. Investors concur, with a 97% probability that no Fed rate hike will occur at this meeting. They believe there is a 19% chance of a Fed rate hike by year-end, a significant drop from the 40% chance estimated just a month ago.
While the recent economic growth figures exceeded expectations, the Fed remains cautious and is closely monitoring data for any signs of inflationary pressures. Powell emphasized that the committee is proceeding carefully, making decisions based on evolving data, the economic outlook, and the balance of risks. While no Fed rate hike is expected now, the possibility of future Fed rate hikes remains contingent on the data’s message. The Fed’s last projections in September suggest a 3.8% year-end unemployment rate and a 3.3% year-end PCE inflation rate, indicating cautious optimism about the economy’s trajectory.
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