The chairman of the Fed, Jerome Powellpointed out in the opening speech of his press conference after the meeting of the entity that he continues to see upside risks to inflation.
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Supply chain constraints have been longer than anticipated and price pressures have widened, with Covid-19 disruptions in China likely to make things worse in the future.
The Fed is very alert to the risks of high inflation and is firmly committed to reducing it. Fed policy will remain adaptive going forward.
Since the Fed’s May meeting, inflation has surprised to the upside and indicators of inflation expectations have also increased. As a result, the Fed decided that further interest rate hikes were warranted.
This continues the focus on rapidly raising interest rates and will help ensure that long-term inflation expectations remain well anchored.
The Fed’s projections are not a plan, as no one knows for sure where the economy will be a year from now.
Nevertheless, the Fed will look in the coming months for convincing evidence that inflation is coming down and the pace of rate hikes will depend on this data.
I don’t expect 75 basis point moves to be common. At the next Fed meeting, a rate hike of 50 or 75 basis points is likely.
The Fed needs to be nimble as there could be more surprises in inflation.
Source: Fx Street
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