The federal reserve officials reporting an extended grip on interest rates, investors and economists will take care of Jerome Powell this week for indices on what could possibly encourage the central bank to take a step, and when.
A fourth consecutive meeting without cutting could cause another tirade by President Donald Trump. But political decision -makers were clear: before they could make a movement, they need the White House to resolve the major question points around prices, immigration and taxes. Israel’s attacks on Iranian nuclear sites have also introduced another element of uncertainty for the global economy.
At the same time, the generally healthy American economy, so slowly, has little expectation of a rate movement as soon as possible. Investors bet that the central bank will not lower loan costs before September at the earliest, according to the prices of term contracts.
“The surest path to take in this situation, when there is no urgency to reduce rates at the moment, is to sit on your hands,” said Seema Shah, a world -class world strategist for the management of main assets.
The decision -makers meet from June 17 to 18. They will publish a statement at 2:00 p.m. Washington time, and Powell should answer questions from journalists 30 minutes later.
Difficult choice
The president’s prices should largely increase prices and slow growth, the risks that officials reported in their last declaration after the meeting. This could possibly force the Fed to make a difficult choice because the economy draws them in opposite directions.
“I do not think that at this stage, there is something to be alarmed,” said David Hoag, director of the fixed income portfolio at Capital Group. “But the more we have uncertainty – for the consumer, for companies in terms of planning – the more I will care about the fundamental principles of the economy which deteriorate.”
Until now, however, the economy has not flashed the warning signs that would encourage the Fed to intervene.
The unemployment rate has remained stable for three months, even if employment growth has slowed down, in part because a sharp drop in immigration also reduces the offer of workers. The more stable the unemployment rate, the more the Fed can have defense rates against potentially higher inflation.
However, price data also made it possible to worry. The underlying inflation increased less than expected in May for the fourth consecutive month. Treasury bills increased last week on news, reinforced by betting on more than one drop in rate this year. The two -year tickets, the most sensitive to Fed policy, decreased by more than seven base points over the week at 3.96%.
However, civil servants are likely to wait for additional months of data to understand how many prices are transmitted to consumers. The air strikes of Israel on Iran will raise additional questions. Fed officials traditionally examine energy prices movements, but a shock from the price of oil could affect inflation expectations.
Fresh projections
New economic forecasts and this week’s rate projections could provide useful advice to the way civil servants think. They will be the first since the announcement of Trump’s “Liberation Day” of radical prices on April 2.
As analysts reflect on the results, the range of possibilities is unusually important.
If the authorities predict that unemployment will increase this year above the 4.4% they planned in March, this suggests that decision-makers could reduce rates before the fourth quarter, said Shah.
Some Fed officials, including Governor Christopher Waller, have already reported an opening to the Cup because they believe that political decision -makers can consider the expected impact of prices on such temporary consumer prices – as long as inflation expectations remain anchored. This combines market -based measures suggesting that traders also think that the price bump will be short -lived.
But if managers increase their expectations in terms of inflation, which could reduce the number of cuts they plan this year, both views in March, said Matthew Luzzetti, US chief economist for Deutsche Bank. Barclays’ strategists have warned of such a “fellow” surprise in a note to customers.
Officials could also consider substantial uncertainty about the final state of Trump policies and simply leave their projections unchanged.
“I would be surprised if the points move a lot,” said Zachary Griffiths, head of the investment quality strategy and macroeconomic in Creditsights. “It was a roller coaster” since the last projection of the Fed in March. “On the net, I think we are probably in a somewhat similar situation,” he said.
Late support
Some economists say that the FED’s next movements calendar will be summed up in the duration of Trump’s policies to appear in economic data – and how it raises concerns about a slowdown.
In a Bloomberg survey among economists conducted from June 6 to 11, 42% of respondents predicted that the Fed will hold stable rates until there is more concrete weakness in the economy.
Julia Coronado, founder of the Macropolicy Research Firm Perspectives and former Fed economist, said that she expects rate reductions from October or December in response to the slowdown in the more notable labor market which, according to her, will materialize by then.
This story was initially presented on Fortune.com
