US Fed Confirms Additional Rate Hike... Also Leaves Room for Pace Adjustment

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The United States central bank, the Federal Reserve (Fed), reaffirmed its existing policy of continuing additional interest rate hikes until inflation falls significantly. However, it also left open the possibility of slowing the pace of hikes at some point.

According to the minutes of the July Federal Open Market Committee (FOMC) regular meeting released by the Fed on the 17th (local time), the participants agreed that "inflation is well above the target (2%), and moving to a restrictive policy stance is essential to fulfill the Committee's mandate of maximum employment and price stability."

This implies that additional rate hikes must continue until inflation eases to the 2% target, and the benchmark interest rate may need to rise beyond the neutral rate to a level that slows economic growth. At the July meeting, Fed officials indicated the neutral rate level to be around 2.25?2.5%. At the FOMC regular meeting held on June 26?27, the Fed raised rates by a giant step (0.75 percentage points) for the second consecutive time, bringing rates to this level.

They also confirmed that they would not consider halting rate hikes until inflation falls substantially. Participants agreed that "if the market begins to doubt the Fed's commitment to price stability, the elevated inflation could become entrenched, which is a significant risk facing the Committee." Contrary to market expectations for a slowdown in rate hikes, inflation remains unacceptably high, and there are almost no signs of easing at this point.

The Fed did not provide specific tightening guidance in these minutes. Instead, it stated that it would closely monitor data before making policy decisions.

However, the minutes included that if inflation stabilizes in the future, the Fed would need to slow the pace of hikes. The minutes stated, "While assessing the cumulative effects of monetary policy adjustments on economic activity and inflation, it seems appropriate at some point to slow the pace of rate increases." This aligns with Fed Chair Jerome Powell’s remarks at the post-FOMC press conference, where he emphasized the tightening stance but noted that "it may be appropriate to slow the pace of hikes at some point." This reflects the Fed’s dilemma between soaring inflation and concerns about slowing growth.

The Fed is scheduled to hold the next FOMC meeting on September 20?21. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently prices in over a 61% chance of a 0.5 percentage point rate hike in September, slightly up from 58% a week ago and 59% the day before.

This content was produced with the assistance of AI translation services.