The US Federal Reserve, which has been struggling with high inflation and some financial crisis possibilities for a while and rapidly increasing interest rates in this direction, continues to shout to the market players the possibility of two more interest rate hikes in order not to leave the decline in inflation to chance.
Black Line: US Core Inflation Rate
In this direction, local Fed presidents try to explain and accept the interest rate decision to the market at the conferences and meetings they attend. In their last speeches, San Francisco Fed President Daly and Cleveland Fed President Mester made statements arguing that two more rate hikes are necessary, while Atlanta Fed President Bostic said that there is no more room for rate hikes and more aggressive decisions to fight inflation may start to be damaging. made statements expressing In particular, Bostic stands out as one of the rare Fed chairmen who argue that the current rates are sufficient in an environment where the Fed wants to continue to increase interest rates.
Fed/Daly: Two more rate hikes necessary
San Francisco Fed President Mary Daly stressed that they face a strong labor market and that two more rate hikes will be needed this year to contain hyperinflation. Daly said he believes several rate hikes are needed this year to bring inflation to the Federal Reserve’s 2 percent target in a sustainable manner.
“During this year, we’re going to need a few more rate hikes to really get inflation up to the 2 percent target sustainably,” Daly said. Maybe we have to do less because we have to do less; On the contrary, we may have to do more. The data will guide us,” he said. Daly noted that the risks of doing too little outweigh the risks of doing too much, but he said that these risks can be better balanced when the right balance is found. That’s why Daly said he thinks the Fed should raise rates at a slower pace than last year to assess how the economy is responding.
Fed/Mester: Interest rates should continue to rise to combat strong core inflation!
Loretta Mester, Chairman of the Federal Reserve Bank of Cleveland, stated that the US central bank should raise more interest rates to bring inflation back to the target level. Mester stated that core inflation is still at strong levels and this situation necessitates further rate hikes.
Stating that the economic difficulties are more than expected and the inflation is higher than expected, Mester emphasized that interest rates should be slightly higher than the current level in order for inflation to return to 2 percent in a sustainable and timely manner. However, Mester did not specify a timetable for the rate hike.
Fed/Bostic: No more hikes needed!
Atlanta Fed President Raphael Bostic stated that inflation could return to its target without further increase in the US Federal Reserve’s (Fed) benchmark overnight interest rate. Bostic said there are a number of “pretty simple” reasons for this.
Bostic stated that spending on goods has stabilized, while in the services sector, many statistics have reached their peak and show that a decline has begun that should slow the pace of price increases.
Bostic said he is one of two Fed policymakers who believe that interest rates could stay in the current 5 percent to 5.25 percent range and that inflation could be gradually pulled back to the Fed’s 2 percent target. However, most of his colleagues think that further interest rates should be raised, and a quarter-point increase is expected to be approved at the next July meeting.
Bostic stated that he sees this as a “cut-of-the-blade” decision, but based on the latest inflation data, the underlying trend is moving in the right direction. Despite the month-to-month variability in the data, Bostic thinks inflation is on a downward trend.
What is the market waiting for?
According to CME FedWatch data, the majority of the market seems to have prepared themselves for the possibility of a 25 basis point rate hike from the Fed’s FOMC meeting on July 26, 15 days later.
According to the data compiled from the positions taken by market actors, 92.4 percent of the positions taken indicate that the possibility of an interest rate hike by the Fed is accepted, while a low 7.6 percent believe that the Fed will keep the interest rates unchanged at the July 26 meeting.
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