Despite calls to the contrary the Federal Reserve is expected to raise interest rates by another 0.25% this week with Fed Chair Jay Powell expected to leave the door open to additional rate hikes later this year.
A 0.25% rate hike would mark the central bank's 11th rate hike in nearly a year and a half and take its benchmark interest rate — the fed funds rate — to a range of 5.25%-5.50%, a 22-year high.
The Fed's two-day policy meeting will kick off this Tuesday, with the central bank expected to announce its monetary policy decision on Wednesday.
Unlike the Fed's June announcement, this week's decision will not be accompanied by updated economic projections from central bank officials. Those forecasts last month suggested two more rate hikes would be needed in 2023 to bring inflation back to the Fed's 2% target.
Fed officials in recent weeks have reiterated forecasts that this week's rate move will be the beginning of a two-step process to bring rates to their peak.
Since the June meeting, with another month of data to evaluate lending conditions, I am more confident that the banking turmoil is not going to result in a significant problem for the economy, and I see no reason why the first of two hikes should not occur at our meeting later this month, Fed governor Chris Waller said in a speech earlier this month
Powell also recently made the case for more rate hikes based on the latest economic data.
If you look at the data over the last quarter, what you see is stronger than expected growth, a tighter than expected labor market, and higher than expected inflation, Powell said during a panel discussion in Portugal at the end of June. So that tells us that although policy is restrictive, it may not be restrictive enough and it has not been restricted for long enough.
However some Wall Street economists expect that Wednesday will mark the end of the Fed's aggressive rate hiking cycle which began in March 2022.
A run of softer inflation readings over the next few months will convince the FOMC to scrap plans for further tightening beyond that, with the Fed’s next move likely to be a rate cut next year, Andrew Hunter, deputy chief US economist at Capital Economics, wrote in a note last week.
This week is also decisive for other significant central banks, Europe's, expected to increase, and Japan's which might remain negative and unchanged, despite growing inflation concerns.