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Inflation may have continued to tick up recently, but the odds of another Fed interest rate increase is now very low.
The financial markets are now pricing in an 11.5% chance the US Federal Reserve will adjust rates at the next policy meeting on September 20, the CME FedWatch Tool showed.
As of Thursday, the tool indicated that there is an 88.5% possibility that the Fed will skip rate adjustments, after a 0.25-percentage-point rise in July.
The Fed has rolled out multiple rate adjustments in a bid to tame inflation. In his recent speech on Friday, US Federal Reserve Chair Jerome Powell suggested that the Fed will not pause interest rate rises, as inflation is still “too high”.
The Personal Consumption Expenditures Price Index, which is tracked by the US Federal Reserve to gauge inflation, rose slightly in July at 0.2% on a seasonally adjusted basis, the same increase as in June this year, according to the US Bureau of Labour Statistics. The PCE price index was up 3.3%, higher than the 3% change recorded in June.
Along with inflation, consumer spending went up as well, rising by 0.8% last month, after a 0.6% growth in June, the Commerce Department reported on Thursday.
Upcoming meeting
The rate-setting Federal Open Market Committee (FOMC) next meets on September 19 to 20, with an announcement on interest rates expected on the 20th.
Some analysts believe the Fed might skip rate adjustments next month as inflation pressures are abating.
There are also other risks to consider, which could weigh on the Fed’s decision. Higher interest rates are believed to have a negative impact on the stock markets and the banking sector.
David Wessel, Director of the Hutchins Centre at the Brookings Institution, said there are several factors the Fed is taking into account, including inflation and the labour market.
“On one hand, they’re looking at inflation. They look at something called the personal consumption expenditures price index… That’s been coming down,” said David Wessel, Director of the Hutchins Centre at the Brookings Institutions, in an interview with NPR.
“But Powell said two months of good data aren’t enough to build confidence that they’ve really conquered inflation… They’re also focused on the labour market, which has cooled some but is still pretty hot.”
He noted that if the employment market doesn’t continue to cool off, Powell would be in favour of raising rates again.
(Reporting by Cleofe Maceda; editing by Seban Scaria)
