US Fed set for further steep rate hike as recession fears loom
The US Federal Reserve looks almost sure to make a 4th straight 75-basis point interest rate increase in the coming month as inflation still soars.
The US Federal Reserve is expected this week to make a fourth straight sharp hike in its interest rates as it struggles with surging costs as its aggressive stance fuels expectations of a recession.
Soaring consumer prices have been squeezing American households, and Fed officials walk a tightrope to try and rein in prices while keeping away from a downturn.
Read: Price index rises despite Fed bids to combat inflation
To raise the borrowing costs and try to mitigate demand, the US central bank has already raised the benchmark lending rate five times this year, including three straight 0.75% hikes.
However, with constant high inflation and a tight labor market supporting wages and spending, analysts believe that another 75-point hike is almost sure at the next policy meeting of the central bankers.
On Tuesday, the policy-setting Federal Open Market Committee (FOMC) begins its two-day policy meeting, and all eyes are on signals that it may be prepared to slow its campaign in the coming months.
According to a Barclays analysis, the focus will be on whether the FOMC is confident of being "on track" toward a policy stance restrictive enough to manage inflation risks.
Economists also expect the Fed to raise rates one more time by another half point in December.
Federal Reserve Chair Jerome Powell made it clear that there was no "painless way" to cool the economy and prevent a repeat of the time when US inflation got out of control in the 1970s and early 1980s.
It took tough measures and a recession to decrease prices, and the Fed is not willing to give up its inflation-fighting credibility.
"We've been told time and again that the Fed would continue to raise rates aggressively until it sees 'compelling' evidence that inflation is slowing down," Nancy Vanden Houten, US economist at Oxford Economics told AFP. "I don't think the data so far meets that standard."
The Fed's measures have rippled through the economy, with mortgage rates recently hitting their highest in decades and home sales in sharp decline.
More Fed hikes are also expected to reduce consumer and business spending, making it more attractive to save rather than spend.
The economy, analysts warn, could enter a recession in 2023 on the effects of the Fed's rate increases, inflation, and a global slowdown in growth.
US inflation surged to a new four-decade high in May, defying hopes that price pressures had peaked and deepening President Joe Biden's political troubles as Americans struggle to meet the cost of essentials like food and gas.
Earlier in the month, a new Bloomberg Economics model projected that in the next 12 months, a recession in the United States is effectively certain.
These projections come just before the midterms in November and shortly after Biden announced, while in an ice cream shop, that the US "economy is strong as hell", which plunged him into hot waters as his comment comes amid one of the country's worst economic crises since 2008.
It is worth noting that the economic situation affecting the financial standpoints of American families and businesses is burdening Biden's popularity, which will affect his chances of winning the November midterm congressional elections.