Despite "cooling down" inflation, the Fed will still do this unbelievable thing in the next 2 days

After pausing interest rate hikes in June, the US Federal Reserve (Fed) is expected to raise its key interest rate again at its two-day meeting on July 25-26 (local time). This is considered the Fed's strongest monetary policy tightening in 22 years despite recent signs of slowing inflation.

Bất chấp lạm phát 'hạ nhiệt', Fed vẫn làm điều khó tin này trong 2 ngày tới

The Fed is expected to raise key interest rates again at its two-day meeting on July 25-26. (Source: Reuters)

After 10 consecutive rate hikes in just over a year, the Fed temporarily “froze” its monetary policy tightening program at its June meeting. The decision gave policymakers more time to assess the “health” of the US economy and the impact of the recent local banking crisis.

However, in the following weeks, positive economic growth data and subdued inflation data strengthened the case for the Fed to raise interest rates by 0.25 percentage points at its two-day meeting (July 25-26). At that time, the federal funds rate would increase to 5.25-5.5% - the highest level since 2001.

Michael Gapen, chief economist at Bank of America, said the US economy is “cooling down” slowly, and most members of the Fed’s policy-making committee appear to believe the economy needs further rebalancing of supply and demand to ensure inflation slows.

More than 99% of traders expect the Fed to raise its benchmark interest rate by 0.25 percentage points at its upcoming meeting, according to traders on the CME Group exchange. The question now is how many more rate hikes the Fed will need to make this year to get inflation back to its long-term target of 2%.

Since the Fed decided to freeze interest rates in June, inflation has fallen below 4%, while unemployment remains near record lows. Economic growth in the first quarter also picked up, helped by stronger-than-expected consumer spending.

The positive economic data has raised the prospect of a “soft landing” scenario, where the Fed successfully reduces inflation by raising interest rates but still avoids the economy falling into recession and unemployment rising.

The line between a mild recession and a “soft landing” is becoming increasingly blurred, and the likelihood of a “soft landing” is increasing, Deutsche Bank economists note.

At the June meeting, Fed officials left open the possibility of two more quarter-point rate hikes this year to cool inflation. After the expected July rate hike, some economists predict the Fed will raise rates as early as its September meeting, while others think rates will remain unchanged at the July meeting.

Source