The US Federal Reserve is widely expected to hold interest rates steady on Wednesday after a summer of mixed economic data, while leaving the door open to another hike if needed.
The Fed has raised interest rates 11 times over the last 18 months, lifting its key lending rate to a level not seen for 22 years as it tackles in- flation still stubbornly above its long-term target of two percent.
After falling sharply over the last year, inflation has ticked up again in recent months due to a spike in energy costs, keeping up the pres- sure on the Fed.
But analysts and traders still bro- adly expect the US central bank to hold rates steady on September 19-20 in order to give policymakers more time to assess the health of the world’s largest economy.
“We think the Fed is done with its tightening cycle.” EY Chief Economist Gregory Daco told AFP. “That view has not changed over the past couple of months.”
“After raising rates in July, we expect the Fed to follow through on strong pre-meeting signals and hold rates steady,” Deutsche Bank economists wrote in a note to clients on Friday.
The rate-setting Federal Open Market Committee (FOMC) now finds itself in a difficult situation as it seeks to address inflation through interest rate hikes while avoiding a recession, a feat that econo- mists call a soft landing.
Recent economic data showing strong economic growth in the first half of the year, inflation trending downward, and a softening jobs market suggests the Fed may just be able to pull it off.
“I think, in general, the economy is doing relatively well, but we are seeing signs that there is an economic slowdown underway.” said Daco from EY.
Analysts at Goldman Sachs recently cut their forecast for a recession in the United States from 20 percent likelihood down to 15 percent, while other economists-including those in the Fed’s research team-say they no longer expect the US to enter a recession.
“Recent data should leave the Fed encouraged by ongoing disinflation but concerned about re-acceleration in inflation because of the strength in activity,” Bank of America econo mists wrote in a note to clients.
Some FOMC members – including Fed Chair Jerome Powell-have indicated that they see a narrow path for the Fed to achieve a soft landing in the coming months.
“I believe there is a golden path opportunity that is unusual, in recent modern Fed history,” Chicago Fed President and FOMC member Austan Goolsbee said during a recent interview broadcast on NPR.
“If you look at expectations in the marketplace, there’s a growing confidence that we can pull it off,” he continued, adding that it hinged on the Fed “remaining attentive to the data.”
Others policymakers, including Fed governor Michelle Bowman, have said in recent weeks that additional rate hikes will likely be needed to bring inflation down to its two percent target.
Pausing rate hikes in September while forecasting further monetary tightening through the Fed’s accompanying economic forecasts would give policymakers more tiIme to assess the incoming data, while keeping the threat of more monetary tightening alive in the fiànancial markets.