Interest rates are bound to top the economic agenda next month when Federal Reserve officials meet to address the unexpected price increases. However, the Fed is unlikely to increase interest rates any time before then, as this would be seen as a panic measure.
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Building Consensus
As reported by Bloomberg, the Fed will not increase interest rates before its policy meeting in March, despite the rise in consumer prices that triggered the possibility of a hike. The move would point to possible leniency on inflation from the central bank.
Chair Jerome Powell has asserted that high prices are to recede later this year, and “also has shown a preference for building consensus within the policy-setting committee, and no Fed officials are now signaling a race to act before its March 15-16 gathering.”
Further, should the Fed increase interest rates before the meeting, its asset-purchase program would have to be concluded in advance —which could catch Americans off-guard. This means the Fed will continue gathering more data and make a decision next month.
Inflation On A Fresh High
Talk of a pre-meeting interest rate hike was triggered on Thursday after inflation rose to 7.5% in January, the highest in 40 years.
St. Louis Fed President James Bullard said in an interview Thursday that he supports three hikes by July, while money markets predict even odds on the chance of a 50 basis-point rise next month.
With regards to the actual increase, San Francisco Fed President Mary Daly said she would not prefer a half-point rate hike since “Markets have already priced in the withdrawal of accommodation, and that is them hearing what the Fed is clearly communicating.”
Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNN: “If you want to get back control of your credibility and reputation, you should be more inclined to raise 50 than 25.”
Alexander Lin, U.S. economist at Bank of America, said, “The goal is to engineer a soft landing in the economy. That means pushing back on the economy just enough to get growth below where they think the trend is.”
Goldman Sachs Group Inc (NYSE:GS), according to CNBC, predicts a total of seven interest rates hikes this year —one for every Fed meeting.
