WASHINGTON—When the Federal Reserve adjourns its two-day meeting today, it could send a signal it anticipates raising interest rates sooner than previously expected following a spate of high inflation readings, according to one forecast.
As CUToday.info previously reported, when the Federal Reserve’s Open Market Committee last met in March it released quarterly economic forecasts indicating most officials expected to keep the Fed’s benchmark interest rate near zero through 2023 to encourage the economy’s recovery from the pandemic.
It’s a position Fed Chairman Jay Powell has also publicly stated.
At that March meeting, the Fed noted consumer prices had risen 2.4% in the fourth quarter of 2020 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run, noted the Wall Street Journal.
Inflation Soars
But inflation has soared since then as the economy continues to rebound faster than many had expected, with the prices of everything from raw materials to hourly wages all on the rise.
The Labor Department’s consumer-price index jumped 5% in May from a year earlier, following a 4.2% increase in the 12 months through April, noted the Journal.
“For inflation to meet officials’ March forecasts, prices would have to not only stop rising but fall over the rest of the year,” the Journal stated in its analysis. “Barclays Bank PLC now expects annual inflation, measured by the Fed’s preferred gauge, to hit 3.6% in the fourth quarter—nearly double the central bank’s target.”
A new “dot-plot” released today could show members of the FOMC expect to raise rates in 2022 or 2023, analysts told the Journal, adding that a June survey of 127 market participants by MacroPolicy Perspectives LLC showed 68% of respondents expecting at least one rate increase in 2023.
One Economist’s Forecast
JPMorgan Chase Chief U.S. Economist Michael Feroli was also quoted as saying he now expects the dot-plot to show a median expectation of a rate increase in 2023.
“We are also bringing forward our expectations for liftoff to late 2023,” he said.
Policymakers have said since December that they wouldn’t raise rates until inflation hit 2% and is forecast to exceed that level for some time and the economy has achieved maximum employment.