US Fed Reserve may hike interest rates again by 25 basis points

By Al Mayadeen English
Source: Agencies
23 Jul 2023 10:32

According to futures traders, more than 99% probability exists that the Fed base rate will increase by 25 basis points at its next meeting.

This file photo shows the Federal Reserve building in Washington, D.C., U.S., Aug. 6, 2021. (AFP)

The US Federal Reserve is predicted to raise interest rates this Wednesday, after taking a pause last month, which will count as the 11th consecutive hike in just over a year.

Last month's break was meant to give policymakers more time to assess the US economy and the effect of recent banking stresses on lending.

Positive impacts since then on economic growth and slower inflation data reinforced the possibility that the Fed's committee will vote for a quarter-percentage-point raise on July 25-26 - increasing the funds rate to between 5.25 and 5.5 %, which is its highest level since 2001.

This comes after Fed chairman Jerome Powell said at the end of last month that a recession in the United States is not out of the picture, and though it is not certain, it is still possible as the Federal Reserve's target of taming inflating and reducing it to 2% per year by hiking interest rates might not be achieved until 2025.

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Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics (PIIE), told AFP, "If I had to bet, I would bet they would raise the Fed funds rate 25 basis points at the next meeting".

Meanwhile, Bank of America's chief US economist Michael Gapen wrote in an investor note that the "cooling of the economy is only happening slowly...We think most committee members believe further rebalancing of supply and demand is needed to ensure disinflation will continue".

According to futures traders, more than 99% probability exists that the Fed base rate will increase by 25 basis points at its next meeting, per CME Group.

The Consumer Price Index, which is the most comprehensive measure of inflation in the United States, increased by 4% in the year leading up to May, marking its slowest rate of growth in over two years. In comparison, the Personal Consumption Expenditures Index, the inflation measure preferred by the Federal Reserve, rose by 4.4% in the year up to April.

Despite these variations, both indices remain significantly higher than the Fed's target of 2% annual inflation.

Back in May, Federal Reserve Bank of St. Louis President James Bullard said an additional two interest rate hikes are expected in the near future, both of them totaling 50 basis points (bps) in all, amid efforts to cool down inflation.