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21 Sep 2022

Econ Digest

FOMC meeting on September 20-21, 2022, the Fed is expected to raise its policy rate by another 0.75% amid high inflationary pressures


        Under high inflationary pressures, the U.S. Federal Reserve (Fed) is expected to  raise its policy rate by another 0.75% at the Federal Open Market Committee (FOMC) meeting slated for September 20-21, 2022, as the U.S. headline inflation rate for August remained above market expectations, despite a second consecutive monthly decline. Meanwhile, core inflation, excluding highly volatile food and energy prices, has accelerated again, suggesting broad-based and increased inflationary pressures even as energy costs, particularly oil, have declined. The latest data shows that the U.S. labor market remains robust. Despite a slight increase in the August unemployment rate, non-farm payrolls came in above market expectations while jobless claims during the week of July 4-10, 2022 also fell to the lowest level in more than three months.    

        Looking ahead, it is expected that the Fed will continue to raise its policy rates until at least the end of 2022. However, the size of its rate hikes at the November and December meetings will primarily rest with inflation and the economic figures. If the U.S. inflation rate eases in line with the slowing economy, the likelihood for a policy rate hike by another 0.75% may be reduced, so the Fed may increase its policy rates slowly at a rate of 0.25-0.50% for the remainder of its meetings in the last quarter of 2022. Nevertheless, if the U.S. inflation rate, particularly core inflation that the Fed is concerned about, has not eased, the Fed may need to continue to aggressively raise policy rates at the remaining meetings of this year. The economic growth and inflation projections as well as the revised Fed dot plot to be released by the Fed at this upcoming FOMC meeting, will be another point of interest as they will reflect the Fed’s views of its monetary policy going forward.

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