At the upcoming Federal Open Market Committee (FOMC) meeting slated for July 25-26, 2023, it is expected that the US Federal Reserve (Fed) will raise its policy rate by another 0.25 percent to 5.25-5.50 percent after signaling through the Fed dot pot at the June FOMC meeting that it would raise its policy rate twice in 2023. Although headline inflation fell steadily to 3.0 percent YoY in June 2023, it remained significantly above the Fed’s target of 2.0 percent, while core inflation and the Core Personal Consumption Expenditure (PCE) Price Index remained high. As a result, the Fed’s goal in controlling inflation has yet to be completed. Although the latest US GDP growth signaled a cooldown, the robust labor market will likely prompt the Fed to raise its policy rate at the upcoming FOMC meeting to ensure that the US economy is headed for a soft landing or inflation will continue to decline so that the US economy can avoid a recession.
Most markets, however, view that the anticipated Fed Funds rate hike at the upcoming FOMC meeting will be the last of the current cycle because the US inflation rate is set to decline steadily ahead. Additionally, despite the robust US labor market, the US economy may slow down in the coming quarters. KResearch views that there is a likelihood that the Fed will press ahead with its rate increases as previously signaled if new economic data, particularly core inflation and wages, do not fall as fast as previously estimated, and the labor market does not cool down as much as it should.