As the passing of the Debt-limit bill has been approved by the U.S. House of Representatives and the Senate, the focus now turns to the Federal Reserve’s next interest rate hike decision scheduled for June. David Wessel, a prominent economist and director of the Hutchins Center on Fiscal & Monetary Policy, shared his insights on monetary policy and the anticipated rate hike proposal in a recent televised interview.
Wessel, a 69-year-old industry veteran, expressed his belief that the Federal Reserve is likely to forgo rate hikes at the June meeting. He cited positive labor market conditions, decreasing inflation, and the U.S. averting a possible default situation that could have triggered a catastrophic market crash. However, Wessel emphasized that keeping the policy rate constant should not be interpreted as reaching the peak rate for this cycle. Instead, it provides the Committee the opportunity to gather more data before making further policy decisions. This idea aligns with the sentiments expressed by Fed Chair Jerome Powell on May 19, who also showed support for pausing rate hikes in June.
Several influential figures within the Federal Reserve have sent strong signals indicating a preference for bypassing an interest rate increase at the central bank’s upcoming meeting. Philadelphia Federal Reserve Bank President Patrick Harker recently stated that he is inclined to support a “skip” in interest rate hikes in June, although acknowledging that future economic data could potentially change his perspective.
In the past, the Federal Reserve implemented a series of rate hikes at ten consecutive meetings, culminating in a cumulative increase of 5 percentage points in the benchmark federal funds policy rate, which is currently between 5.0% and 5.25%. Nevertheless, the positive economic indicators, coupled with the cautious approach adopted by economists, policymakers, and leading Fed officials, indicate a potential temporary halt in the rate hike trajectory.
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