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Fed Nears End of Rate Hike Cycle to Curb Inflation, Officials Say

The Federal Reserve inches closer to concluding its rate hike cycle, to tame persistent inflation, according to central bank authorities.

San Francisco Fed President Mary Daly
San Francisco Fed President Mary Daly

The Federal Reserve's Tackling Inflation Strategy

The Federal Reserve is likely to increase interest rates further in its bid to mitigate persistent inflation. However, according to several central bank officials, the conclusion to the current tightening cycle of monetary policy is within sight. Since March 2022, the Fed has lifted interest rates by five percentage points to control the most significant inflation the US has experienced in forty years. The officials decided to delay an additional rate hike last month to evaluate the unfolding impacts of preceding rate increases, despite anticipating at least two more hikes by the end of 2023.

San Francisco Fed President Speaks on Inflation Control

San Francisco Fed President Mary Daly, during an event at the Brookings Institution, expressed the widely shared view among her rate-setting colleagues at the Fed that a few more hikes this year would likely bring inflation sustainably back to the US central bank's 2% goal. However, as the Fed approaches the final phase of its hiking cycle, Daly noted that the risks of doing too little and overdoing rate hikes are beginning to balance out. She expressed her support for the Fed's cautious approach and the possibility of adjustments based on incoming data.

Future Expectations from Fed Policymakers

Policymakers at the Fed are expected to enforce another rate hike later this month, potentially bringing the policy rate within the 5.25%-5.50% bracket. However, it remains uncertain if they will opt for another hike in September, wait until November, or simply maintain the current rates and allow inflation to naturally decrease over time.

Fed Chair Jerome Powell's Stance on Inflation

Fed Chair Jerome Powell maintains that consecutive rate hikes may still be necessary to combat stubbornly high inflation. The central bank's preferred measure of inflation, the personal consumption expenditures index, had dropped from a high of 7% last year to 3.8% in May, still almost double the Fed's target.

Survey Indicates Falling Near-term Inflation Expectations

A survey released by the New York Fed showed that near-term inflation expectations have declined to their lowest since April 2021, suggesting a potential easing of price pressures and reducing the urgency for another rate hike. However, with home prices predicted to rise for the fifth consecutive month, housing inflation could re-emerge as a concern for the Fed.

Atlanta Fed President Advocates Patience

Atlanta Fed President Raphael Bostic recommended patience on rate hikes, stating that restrictive policies could help bring down inflation without further action from the central bank. However, a faction within the Fed still advocates for more aggressive action.

Differing Opinions within the Federal Reserve

Cleveland Fed President Loretta Mester, although unable to vote on the Fed's policy-setting committee this year, stated that she would have opted for a rate increase, understanding the rationale for not hiking rates in June. Mester suggested that more information about the economy is necessary before deciding for the July 25-26 meeting, but she believes interest rates will still need to increase. Her views stem from the economy's resilience and the persistence of high inflation, despite stalled progress on core inflation.