Interest rates

Interest rates could stop rising ‘at some point’, July Fed minutes suggest – Experts clash over how fast

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The Federal Reserve released the minutes of its July 26-27 Federal Open Market Committee (FOMC) meeting on August 17, noting that “In discussing potential policy actions at upcoming meetings, attendees continued to anticipate that continued increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives.

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According to the minutes, participants agreed that “the pace of policy rate increases and the extent of future policy tightening would depend on the implications of incoming information on the economic outlook and risks to the outlook.”

Experts Offer Variety of Analysis on July Fed Minutes

Jamie Cox, managing partner of Harris Financial Group, told GOBankingRates: “I don’t think anyone can read Fed minutes and say they’re pivoting; however, it is clear that rate hikes have the effect of reducing demand and, by extension, inflation.

Cox added that – given how quickly some data points have changed to suggest inflation has peaked and is falling – “I would expect the pace of rates to slow from here. Fifty basis points is probably the ceiling for September.

Participants noted that as the monetary policy stance tightens further, “it would likely become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on the ‘economic activity and inflation’, according to the minutes.

However, some participants noted that “it would probably be appropriate to hold this level for some time to ensure that inflation is firmly on the way back to 2%”.

Jeffrey Rosenkranz – portfolio manager, Shelton Capital Management – told GOBankingRates that the minutes “had a little something for everyone, but not enough for anything conclusive”.

“With the Fed’s language that a slower pace is appropriate at some point and fears of excessive tightening, investors looking for a dovish pivot may be encouraged,” he said. he declares. “On the other hand, strong words about the risks of the market not believing its forecasts and its determination to beat inflation, deeming the ongoing hikes appropriate and downplaying the impact of cooling commodity prices all remind as the struggle continues and financial conditions need to remain tight.

He added that when placed in the proper context (that these July 27 minutes are obsolete at this point), “Fed governors will have ample opportunity to deliver a more current message to Jackson Hole this week. This will coincide with the typical late summer liquidity shortage in the markets, which will exacerbate volatility over the coming weeks.

Although inflationary pressures have eased, there remain pockets of seemingly entrenched inflation – particularly in food prices, rents and labor wages, said Quincy Krosby, chief global strategist for LPL Financial, to GOBankingRates.

“That a parade of Fed speakers issued an almost orchestrated response after the July Fed meeting warning market participants that the Fed is by no means about to ease its campaign has been dismissed. by the market,” Krosby said. “It seems likely that Chairman Jerome Powell will – and should – use the Jackson Hole meeting as a chance to have the market recalibrate his projections of the Fed’s path. Moreover, he must emphasize, once again, that price stability is the Fed’s ultimate goal.

The Fed has raised interest rates before and will likely do so again

At the July meeting, as expected, the Fed said it would raise interest rates by three-quarters of a percentage point in a back-to-back move after June’s historic hike. The new unanimous decision came amid inflation at its highest level in 41 years and fears of an impending recession.

Chairman Jerome Powell said at a news conference on July 27 that, given the inflation data, raising rates was the “appropriate thing to do.”

According to the minutes, “participants perceived the decline in commodity prices – particularly for oil – and the FOMC’s commitment to lower inflation as pointing to lower inflation ahead. Market-based measures of near-term inflation offsets declined and continued to suggest that inflation would decline over the next few quarters.

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Ben Vaske, investment research analyst at Orion Advisor Solutions, told GOBankingRates that while the FOMC has noted that headlines such as lower gasoline prices could lower inflation rates in the near term, there is there is very little evidence that inflationary pressures are easing overall.

“These comments are much more hawkish than dovish, again, and a 50 to 75 basis point hike in the fed funds rate is on the cards at the next Fed meeting, when those hikes will only start to slow. ‘at some point in the future,’ Vaske added.

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About the Author

Yael Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She has also worked as a VP/Senior Content Writer for major New York-based financial firms, including New York Life and MSCI. Yael is now independent and most recently co-authored the book “Blockchain for Medical Research: Accelerating Trust in Healthcare”, with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in journalism from New York University and one in Russian studies from Toulouse-Jean Jaurès University, France.