The Federal Reserve is expected to raise its benchmark interest rate by 75 basis points on Wednesday, marking the fourth meeting in a row in which an interest rate hike would be implemented. Following the announcement, markets expect the central bank to slow down the pace of its interest rate hikes so long as inflation does not flare up again.
Michael Pearce, the senior US economist at Capital Economics, wrote in a note to clients that his firm expects Federal Reserve Chair Jerome Powell to explore strategies that involve slowing down interest rate hikes following Wednesday’s announcement. “He could do so by acknowledging the slowdown in the real economy already underway and emphasizing the lags between slowing economic activity and weakening price pressures,” Pearce commented.
San Francisco Fed President Mary Daly expressed agreement with Pearce’s sentiment, suggesting that the Federal Reserve could look to readdress its stance on interest rate hikes once inflation data shows signs of abating.
Financial data has shown that the previously implemented interest rate increases have pushed down consumer demand, resulting in consumer and business spending rising by just 0.1% at an annual rate, compared to a 0.5% rise in the second quarter and a 2.1% increase in the first quarter.