Federal Reserve Chair Jerome Powell will have to balance inflation risks with a desire to avoid tipping the US economy into recession
US central bankers opened their two-day policy meeting Tuesday amid a blistering inflation surge that has ignited predictions the Federal Reserve will approve the biggest interest rate hike in more than 27 years.
Fed Chair Jerome Powell has signaled that policymakers were poised to implement another half-point increase in the benchmark borrowing rate this week and another next month.
A Fed spokesperson confirmed the meeting of the policy-setting Federal Open Market Committee began as scheduled at 1500 GMT. Markets will get the rate decision on Wednesday at 1800 GMT.
After dropping the rate to zero since March 2020 in a successful bid to help the world’s largest economy avoid a devastating downturn and recover quickly from the impact of the Covid-19 pandemic, the Fed has raised rates twice, including a big, half-point increase last month.
– Credibility boost or negative surprise? –
“Given the latest information on inflation, we believe that risk-management considerations call for aggressive action to reinforce the Fed’s inflation-fighting credibility,” Barclays analysts said in a commentary.
But other analysts say the massive step would be unnecessary and could be viewed as panicky, and instead project an additional half-point hike in September.
He noted that many of the factors driving the price spikes are “outside the Fed’s control, like oil prices.”
Karl Haeling of LBBW said markets are pricing in at least one 75-basis-point increase in the next three meetings, but chances of that happening this week are “50-50.”
Barclays said despite the element of surprise, “an aggressive move in June would provide the committee with the biggest bang for its buck, sending a resounding signal of the Fed’s resolve to guide inflation back to its 2 percent target.”
Originally published as Fed begins meeting with massive hike possible amid price surge