Fed starts policy meeting amid hopes of a smaller rate hike

Washington: US central bankers opened a two-day policy meeting Tuesday on rising expectations that they will slow the pace of interest rate hikes again, as inflation begins to fade.

The Federal Reserve has raised the benchmark lending rate seven times last year, walking a fine line between reining in costs and trying not to tip the world’s biggest economy into recession.

The real estate sector, which is sensitive to interest rates, has slumped while overall consumer inflation and wage growth have cooled as well.

These indicators raise hopes that the policy-setting Federal Open Market Committee (FOMC) will announce a smaller, 25 basis points hike at the end of its meeting Wednesday.

A Fed spokesperson confirmed Tuesday that “the FOMC meeting began at 10:00 AM ET (1500 GMT) as scheduled.”

“As the FOMC gathers for the first time in 2023, it will face a difficult challenge,” said Gregory Daco, chief economist at EY-Parthenon.

On one hand, he said officials have to communicate their desire to maintain a “sufficiently restrictive” policy stance, which can help bring inflation down towards policymakers’ two percent target. The goal is to raise the cost of borrowing and cool demand.While consumer inflation has come down from a painful 40-year high, it still stood at 6.5% in December according to Labor Department data.



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