The Fed is Expected to Raise Rates by 75 Basis Points to "Lay the Ground Work for a Step Down"

 The Fed is expected to raise interest rates by 75 basis points. After two days of Federal Open Market Committee, they are expected to raise rates for the fourth meeting in a row. It is also expected that the central bank will stand down a bit on their stance to help lower inflation and to slow down the rapid growth of rates. Michael Pearce, a senior US Economist of Capital Economies, wrote a letter to clients saying, "We do expect Chair Jerome Powell to… use the post-FOMC press conference to lay the ground for a step down in the pace of rate hikes". 

After the September meeting, officials felt that the central bank could have slowed the pace of rate hikes so they could've assess the impact and damage that previous rate hikes have made on inflation. Fed officials are also expected to think about balancing raising rates to cool down the current rate of inflation. This will run the risk of rates getting too high and creating a recession. Mary Daly, President of the San Francisco Fed says that the Fed should be "talking about 'stepping down' when inflation show signs of abating".

Domestic demand appears to be being pushed down by high interest rates according to data. Final sales to private domestic purchasers only increased by 0.1% this past quarter, a significant step down from the increases compared to the first two quarters of the year, that being 0.5% in the second quarter and 2.1% in the first quarter. 

Consumer spending also seems to be having a hard time, as imports fell by 7% in the third quarter. Along with that, job markets are slowing down with job openings falling as well. The job report that will be released on Friday only projects that 200,000 nonfarm payroll jobs were created. This is significantly lower than the monthly average of 2022, that being 420,000. The employment cost index was raised by 1.2% this past quarter, which shows that the inflationary pressures are getting lighter. The official measures aren't easing as quickly as they were hoping it to. The PCE only rose by 5.1%, much higher than their goal of 2%. They are also projecting interest rates to raise between 4.5%-5% to help lower inflation down to their 2% goal.

This is an interesting article because this is projecting what we could expect from the economy and the potential recession that will occur from the inflation and interest rate hikes. 

https://finance.yahoo.com/news/fed-expected-to-again-raise-rates-223821317.html