There’s no suspense about the decision of the Federal Reserve on Thursday (June 29): They’ll raise rates.
CBS MarketWatch reported that the anticipation comes from the statement, what the Fed will say about how the economy is doing, where inflation is heading, and what the Fed will do next.
The Federal Open Market Committee (FOMC) meeting on Wednesday and Thursday will dominate the economic news this week. Economic data on housing sales, consumer spending, consumer confidence and inflation will get plenty of attention as well.
Finally, first-quarter gross domestic product will be revised higher.
With all the Fed officials singing from the same hymnal over the past three weeks, it’s pretty clear that they see the “unwelcome” burst in core inflation in the past few months as the biggest risk to stability. A rate hike on Thursday is assured, with some people beginning to talk about whether the FOMC could surprise everyone with a half-point rate hike, rather than the quarter point hikes they’ve done for the past 16 meetings.
When the FOMC statement is released on Thursday at about 2:15 p.m. Eastern, every sentence, every word, and every comma will be dissected, parsed and examined thoroughly.
The FOMC statement explains officials’ reasoning and prepares the markets for what will happen next.
“We believe the new directive will be at least as hawkish as the last directive,” said Ethan Harris, the top U.S. economist for Lehman Bros. A hawk in this context means to be an aggressive and committed solider in the war against inflation.
Harris argues that the Fed’s talk-tough campaign has been part of a successful effort to regain credibility after markets and economists began to question the Fed’s conviction.
It’s worked, so why change it?
“A dovish directive would undercut this credibility campaign, and would risk putting the Fed back behind the curve in its battle against inflation,” Harris said.
Most economists agree that the Fed will likely acknowledge that growth has slowed. In May, the statement said that “growth is likely to moderate to a more sustainable pace.” Since then, job growth has slowed, retail sales weakened, housing sank further, and income growth was flat.
The Fed’s statement on inflation could be the most important part of the announcement.