Three months ago, Personal Consumption Expenditure (PCE) inflation for this year was expected to run 4.2% at the headline and 4.1% at the core now, headline price pressures are expected to increase by 5.2% and core 4.3%, a level about twice as high as the Fed desires. Inflation - both current and expected - is forcing the Fed's hand into a faster pace of increases. For next year, 0.7% was trimmed off the March forecast, and a modest 1.7% growth rate is now expected for next year, too. The members aggregate forecast for economic growth for 20 was pulled down considerably for this year, the latest expectation is growth of just 1.7% for the year as a whole, down from 2.8% just three months ago. The update to these projections was significant. In the updated Summary of Economic Projections (SEP) Fed members submitted their outlooks for economic growth, unemployment, headline and core inflation and their expectations for where the federal funds rate will be this year, next year and beyond. In addition to the significant increase in the key short-term policy rate - a near doubling - the outlook for more hikes this year was increased greatly. Even if not negative, growth will likely be sub-par this quarter. With first quarter GDP already at -1.5%, there's at least a possibility that the technical definition of a recession - two quarters of declining growth - could be met when all the data for the second quarter is tallied. Unlike May, however, the economy is already facing increasing headwinds on the day of the meeting, economic growth for the second quarter of 2022 was reckoned to be at zero, according to the Federal Reserve Bank of Atlanta's GDPNow tracking tool. Since the Fed's last meeting in May, inflationary pressures have only worsened, and in recent days word began to spread around financial markets that an even larger-than-expected increase in the federal funds rate was coming. As well, expecting higher costs in the future can also alter spending patterns today as people and companies may look to front-run higher future costs. The Fed cares very much about expectations for inflation, reasoning that expectations of higher future inflation can become self-fulfilling. This changed after consumer prices came in hotter than expected in May and surveys of expectations about future inflation showed signs of becoming less "well anchored". The Fed felt compelled to make a larger move than their "forward guidance" suggested at the May meeting. The seventy-five basis-point increase in the federal funds target rate to a range of 1.5% to 1.75% puts the key short-term monetary policy rate at its highest level since October 2019, and a number of additional rate increases are expected to come. With the largest single rate increase in 28 years, the Federal Reserve began to move even more forcefully to address inflation that is running at 40-year highs.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |