Wed. Jul 24th, 2024

US inflation expectations survey eases fears of 1% rate rise from Fed<!-- wp:html --><div></div> <div> <p>A US inflation survey that closely monitored the Federal Reserve showed that consumer expectations about future price growth eased in July, mitigating fears that the central bank will raise interest rates by a full percentage point this month. . </p> <p>The University of Michigan consumer confidence survey found that household expectations about where inflation will be in five years’ time have fallen more than expected to 2.8 percent from the previous reading of 3.1 percent. One-year inflation expectations were 0.1 percentage point lower at 5.2 percent.</p> <p>The preliminary results, which also showed consumer confidence still close to its all-time low, come days after an inflation report that top Fed officials labeled “bad overall” and “major league disappointment.” </p> <p>Price increases for most goods and services accelerated again in June, according to the consumer price index released by the Bureau of Labor Statistics, with annual inflation reaching a 40-year high of 9.1 percent.</p> <p>With core inflation — which sweeps away volatile items like food and energy — also picked up in June, traders raised bets that the Fed would jettison its previous policy guidelines and make a full percentage point adjustment at its meeting this month. </p> <p>At one point, the odds rose to more than half, according to CME Group, before falling sharply after the Michigan survey showed moderation in inflation expectations and several Fed officials withdrew. </p> <p>Just days after saying “everything is in play,” Raphael Bostic, president of the Fed’s Atlanta branch, said Friday that the central bank’s next move should be “orderly” and that “too drastic measures” could undermine the economic recovery. </p> <p>James Bullard of the St. Louis Fed also stressed on Friday that the difference between a move of 0.75 percentage points and a larger option may not make too much of a difference in the central bank’s fight against rising prices. </p> <p>Instead, he argued that the key interest rate may need to rise to 3.75 percent to 4 percent by the end of the year to adequately contain the economy. It currently fluctuates between 1.50 percent and 1.75 percent.</p> <p>Remarkably, no official took the bigger option off the table entirely — arguing that the final decision would depend on incoming data — but the drop in inflation expectations is sealing the deal for many economists.</p> <p>While US retail sales came in slightly stronger than expected in June, rising 1 percent, the reading was not robust enough to tip the balance sheet towards a larger rate hike.</p> <p>The main fear motivating the Fed to remain ultra-hawkish in its approach to tightening monetary policy revolves around expectations of future inflation and whether forecasts indicate consumers and businesses think the US central bank has lost control. </p> <p>The risk is that expectations will rise, further fuel price pressures and unleash a worrying cycle that could force the Fed to take even stronger action in response. </p> <p>That’s a chain reaction that the central bank says it could not sustain, with a sharp recession virtually guaranteed in that scenario. </p> <p>Officials still argue that the Fed can cut inflation without causing undue economic pain, but many have acknowledged that the road to that outcome is narrowing and largely dependent on external factors such as continued moderation in commodity prices and easing bottlenecks in the economy. the supply chain.</p> <p>Wall Street economists are less optimistic, with most predicting a recession next year. </p> </div><!-- /wp:html -->

A US inflation survey that closely monitored the Federal Reserve showed that consumer expectations about future price growth eased in July, mitigating fears that the central bank will raise interest rates by a full percentage point this month. .

The University of Michigan consumer confidence survey found that household expectations about where inflation will be in five years’ time have fallen more than expected to 2.8 percent from the previous reading of 3.1 percent. One-year inflation expectations were 0.1 percentage point lower at 5.2 percent.

The preliminary results, which also showed consumer confidence still close to its all-time low, come days after an inflation report that top Fed officials labeled “bad overall” and “major league disappointment.”

Price increases for most goods and services accelerated again in June, according to the consumer price index released by the Bureau of Labor Statistics, with annual inflation reaching a 40-year high of 9.1 percent.

With core inflation — which sweeps away volatile items like food and energy — also picked up in June, traders raised bets that the Fed would jettison its previous policy guidelines and make a full percentage point adjustment at its meeting this month.

At one point, the odds rose to more than half, according to CME Group, before falling sharply after the Michigan survey showed moderation in inflation expectations and several Fed officials withdrew.

Just days after saying “everything is in play,” Raphael Bostic, president of the Fed’s Atlanta branch, said Friday that the central bank’s next move should be “orderly” and that “too drastic measures” could undermine the economic recovery.

James Bullard of the St. Louis Fed also stressed on Friday that the difference between a move of 0.75 percentage points and a larger option may not make too much of a difference in the central bank’s fight against rising prices.

Instead, he argued that the key interest rate may need to rise to 3.75 percent to 4 percent by the end of the year to adequately contain the economy. It currently fluctuates between 1.50 percent and 1.75 percent.

Remarkably, no official took the bigger option off the table entirely — arguing that the final decision would depend on incoming data — but the drop in inflation expectations is sealing the deal for many economists.

While US retail sales came in slightly stronger than expected in June, rising 1 percent, the reading was not robust enough to tip the balance sheet towards a larger rate hike.

The main fear motivating the Fed to remain ultra-hawkish in its approach to tightening monetary policy revolves around expectations of future inflation and whether forecasts indicate consumers and businesses think the US central bank has lost control.

The risk is that expectations will rise, further fuel price pressures and unleash a worrying cycle that could force the Fed to take even stronger action in response.

That’s a chain reaction that the central bank says it could not sustain, with a sharp recession virtually guaranteed in that scenario.

Officials still argue that the Fed can cut inflation without causing undue economic pain, but many have acknowledged that the road to that outcome is narrowing and largely dependent on external factors such as continued moderation in commodity prices and easing bottlenecks in the economy. the supply chain.

Wall Street economists are less optimistic, with most predicting a recession next year.

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