Home » Business » New Fed Newswire Outlook: 25 basis point rate hike next week should be no suspense Officials focus on inflation trends Provided by Financial Associated Press

New Fed Newswire Outlook: 25 basis point rate hike next week should be no suspense Officials focus on inflation trends Provided by Financial Associated Press

© Reuters. New Fed Newswire Outlook: 25 basis point rate hike next week should be a no-brainer Officials focus on inflation path

News from the Financial Associated Press on January 29 (edited by Niu Zhanlin)On Sunday local time (January 29), the well-known reporter Nick Timiraos, known as the “New Fed News Agency”, published his latest article. He pointed out that as inflationary pressures further eased, Fed officials are preparing to slow down interest rate hikes for the second time in a row pace. But officials are concerned that inflation could accelerate again as the labor market remains tight.

Fed officials are expected to raise interest rates by 25 basis points at their meeting next week and begin discussing the conditions for a pause, including how far labor demand, spending and inflation need to slow.

The Fed narrowed its rate hike to 50 basis points in December, following four consecutive hikes of 75 basis points. Federal Reserve officials say it will take time for the full cooling effect of rate hikes to play out.

Fed officials have said in recent public statements and interviews that scaling back rate hikes to a more conventional 25 basis points would give them more time to assess the impact of rate hikes so far and decide when to stop raising rates.

Timiraos pointed out that the current debate is about the direction of inflation and the correct way to forecast inflation, whether it is a bottom-up analysis of recent price and wage data, or a traditional top-down analysis of how high or low the economy is. at its normal level.

Data on Friday showed the Fed’s preferred measure of inflation, the personal consumption expenditures price index (PCE), rose 5% in December from a year earlier, after rising 5.5% in November. The analysis pointed out that the Fed’s previous aggressive monetary tightening policy is playing a role in the economy. Judging from the current situation, the most serious round of high inflation seems to have passed, but the current level is still far from the Fed’s 2% target.

In the labor market, there has been growing evidence that labor demand may have softened in recent times, including temporary hiring and a decline in working hours. If wage growth slips to 4%, it will be much easier to get inflation down to 2%.

Inflation did come down, largely due to lower fuel prices and prices for things like used cars. And Fed Chairman Jerome Powell and several colleagues have recently shifted their focus to a narrower range of labor-intensive services by excluding prices for food, energy, shelter and commodities.

Officials believe this category can reveal whether higher wage costs are being passed on to consumer prices. And if the pressure on wages eases on its own, there will be no such thing as a spiral of rising wages and prices.

In addition, economists have also said that the Fed will slow the increase in policy interest rates to 25 basis points, and will take pains to ensure that the market does not think that the rate hike is over.

UBS economist Jonathan Pingle said: “While there is good news on inflation and one step closer to the completion of the task, it may be too early for the Fed to stop raising interest rates and signal that it is about to stop raising interest rates. .”

In other words, “there could be one last unpleasant, more austere signal,” said Paul Ashworth, chief North American economist at Capital Economics.

Jonathan Miller, senior U.S. economist at Barclays Capital, pointed out that this unhappiness will come from Fed Chairman Powell, who will “consider very carefully how not to inadvertently send a looser signal.”

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