Will they, or won't they?
Weekly Bond Commentary
The question at hand is, will Federal Reserve policymakers raise the federal funds rate at its meeting this Wednesday, or pause/skip/pass? Semantics of the latter aside, they have a difficult choice. The stickiness of inflation would suggest they should continue to hike, in an attempt to slow economic growth and the price/cost pressures resulting from it. Raising rates would be consistent with their data-dependent focus on lowering inflation to its 2% target.
Foregoing a hike, on the other hand, would give the economy time to absorb the Fed’s steep path over the last 15 months. Weekly jobless claims are climbing slowly, and consumer inflation has fallen over the last few months. Progress toward a soft landing for the economy is underway. But unfortunately, inflation shows signs of stabilizing.
The Fed will have a new read on it as it meets this week, with the May CPI report out tomorrow. Markets will be focused not only on the rate decision, but also on Fed Chair Jerome Powell’s press conference and the Summary of Economic Projections, in which the officials lay out their expectations for the near future.