US Fed opens policy meeting with big rate hike on the table

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Washington (AFP) – U.S. central bankers opened their two-day policy meeting on Tuesday with another sharp interest rate hike seen as a near certainty amid stubbornly high inflation.

American families have felt the pressure of soaring prices, which have risen at the fastest rate since the early 1980s, and Federal Reserve Chairman Jerome Powell has made it clear that officials will continue to act aggressive way to cool the economy.

Many economists are expecting a third straight three-quarter point rate hike at the end of the meeting on Wednesday, an unprecedented action.

Fed officials are united in the message that the US central bank cannot risk letting inflation take hold due to the adverse impact on workers and businesses, but analysts warn that recession risks increase.

“The rate of inflation will continue to determine the path of monetary policy, despite growing risks of a recession in 2023,” said Kathy Bostjancic of Oxford Economics, which forecasts a slowdown early next year.

“We are seeing higher inflation for longer, more aggressive monetary policy tightening by the Fed, and negative fallout from a weakening global backdrop, combining to push the US economy into a mild recession in the first semester 2023.”

The Fed’s Federal Open Market Committee (FOMC) is due to announce its decision on Wednesday at 4:00 p.m. GMT.

Markets have been rattled in recent days by decidedly hawkish statements from central bankers, and Powell’s post-meeting press conference will be closely watched for insight into what he thinks the next steps will be.

More hikes to come?

Despite the welcome drop in gasoline prices at the pump in recent weeks, the disappointing August consumer price report, released last week, showed that housing, food and healthcare costs medical supplies continued to increase. And when volatile food and energy prices are eliminated, what is known as core inflation picks up.

It is not just the current high inflation that worries policymakers, but the fear that consumers and businesses are beginning to expect rising prices to become a permanent feature, which could trigger a dangerous spiral. and a phenomenon called stagflation.

This fear prompted the Fed to accelerate its rate hikes, rather than follow the more usual course of small, gradual steps over a longer period.

The US central bank has raised the key rate four times this year, including two consecutive three-quarter point hikes in June and July.

The aim is to raise the cost of borrowing and cool demand – and that’s having an impact: mortgage rates have now topped 6% for the first time since 2008.

And recent statements from Fed officials indicate more rate hikes are ahead, and no cuts until inflation is brought under control – drowning the hopes that had been building up in markets after the policy meeting. of July.

The FOMC will also release members’ quarterly forecasts, which will show how they feel about the direction of the economy and the impact of policy changes, and how soon inflation will come down.

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