Fed convenes to launch new salvo against record US inflation

The US important bank opened its coverage meeting Tuesday, that’s predicted to produce a huge rate hike as policymakers go at the attack against document-high inflation.

Following a quarter-factor increase in the benchmark lending rate in March, Federal Reserve Chair Jerome Powell and different critical bankers have stated a half-factor increase may be introduced whilst the two-day meeting concludes Wednesday.

The challenge for the policy-setting Federal Open Market Committee (FOMC) is to tame price pressures without tipping the world’s largest economy into a recession.

The Fed is “behind the curve on inflation and ready to move aggressively,” Grant Thornton’s Diane Swonk said in an analysis.

Consumer prices rose 8.5 percent in March compared to the year prior, the highest level in more than 40 years, and while the economy has recovered strongly from the pandemic, growth contracted 1.4 percent in the first three months of the year.

The second quarter of negative growth would constitute a recession.

Analysts argue that avoiding a downturn during an aggressive tightening cycle is difficult to achieve, especially since the price increases are partially being driven by factors outside the Fed’s control, such as the war in Ukraine and Covid-19 lockdowns in China.

Nor can the Fed impact the number of workers available in the US labour market to ease hiring challenges that have driven wages higher — fueling fears of a possible wage-price spiral.

“Many within the Fed have voiced their scepticism about achieving a soft landing at this late stage of the game. Even Powell has said the landing could be ‘soft-ish’ instead of ‘soft,'” Swonk said.

Powell has acknowledged the central bank will move quickly and front-load rate hikes, including multiple half-point increases, if necessary.

The FOMC is at this meeting also set to begin the process of shedding its massive holdings of bonds built up during the pandemic as the institution sought to keep credit flowing through the economy.

That also could unsettle financial markets and act as a brake on activity.

Kathy Bostjancic of Oxford Economics expects another half-point hike in June and predicts the lending rate will end the year at 2.13 percent and then rise to 2.63 percent by mid-2023.

“We look for the combination of slower aggregate demand and some easing of supply chain stresses in 2023 to relieve inflationary pressures,” she said in an analysis.

“Labor force participation should continue to recover, helping to temper wage growth.”

For the instant, the signals point to “exceptionally low but growing odds of a recession inside the subsequent a year” however Bostjancic warned the probabilities will boom if the factors riding inflation get worse.