WASHINGTON–After more than a year of ongoing rate increases, the Federal Reserve’s Open Market Committee (FOMC) will kick off its two-day rate-setting meeting today, with most—but not all—analysts predicting it will leave rates unchanged.
The FOMC has raised rates at 11 straight policy meetings after being caught flat-footed by a surge in inflation.
For the Fed and other central banks around the world, inflation has proved to be more stubborn than many had expected and challenging to stamp out.
“We’re into the period where we’re kind of groping a bit,” William English, a former Fed staff member who is now at Yale University, told the New York Times. “It’s going to be a period of considerable uncertainty.”
Adding to that uncertainty is the increase in rates is putting heavy strain on many financial institutions, including a number of large banks.
NAFCU: ‘Expecting a Pause’
“I think like most other observers we are expecting a pause this month,” said NAFCU’s chief economist, Curt Long. “I think in the event CPI (numbers) come in really hot, that is still unlikely to change what the committee is going to do at this meeting. The committee may disagree about a lot, but I think they agree that they do not like to surprise the markets and the markets are expecting a pause.
“To the extent we get higher inflation readings than we expected, I think that could contribute to expectations for a rate hike as early as July,” Long continued. “I think that's sort of how the committee would play it.”
The CUNA Forecast
As for how the Fed might act, Dawit Kebede, senior economist with CUNA Kebede added in CUNA’s most recent economic forecast, “We are forecasting inflation would continue to slow down and probably reach 3.5% by the end of the year. Still, above the Fed’s target of 2%, but maybe next year it will come down to where the Federal Reserve wants it to be. In the process, the unemployment rate would trend up a little bit to 4% and that's also consistent with prices coming down … That’s our forecast for year-end. No other further increases coming this year and probably when inflation starts to go down next year rates will start to go down.”
NAFCU’s chief economist, Curt Long, has also said he expects the Fed will leave rates untouched when it adjourns on Wednesday.
Earlier this week, the futures markets was pricing in no change to the prime lending rate, but expecting a probable increase in July, according to the Times.
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