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9 Jun 2023

Econ Digest

FOMC meeting, June 13-14, 2023: Fed officials may not be unanimous in holding the policy rate at 5.00-5.25%


        KResearch expects that the Federal Reserve (Fed) may maintain its policy rate at 5.00-5.25% during the Federal Open Market Committee (FOMC) meeting on June 13-14, 2023. Its resolution, however, is unlikely be unanimous this time, pending an assessment of the economic and inflation outlook following steeper rate hikes seen so far this year. Despite the high inflation rate in the US amid the robust labor market, overall inflation has begun to ease gradually, while the labor market has shown signs of a slowdown amid increased risks in the US banking sector, which have led to credit tightening. Additionally, steeper rate increases over the year will substantially hurt the US economy going forward, given the lag time in the implementation of its monetary policy. Therefore, the Fed is expected to hold its policy rate steady at 5.00-5.25% in the upcoming FOMC meeting in order to assess the economic and inflation data as well as the financial sector development going forward.

        It is expected that the US economic growth forecast and Fed Funds rate outlook, which reflects the Fed’s future monetary policy stance, will be disseminated at the upcoming FOMC meeting. If the US economic and inflation outlook differs from its prior estimate, the Fed still has the flexibility to alter its future monetary policy. KResearch is of the view that the Fed will likely keep its policy rate unchanged at the upcoming FOMC meeting on June 13-14, 2023 although it may not rule out any rate hikes at subsequent FOMC meetings if needed, given the fact that inflation may surge again amid volatile global oil prices. However, if inflation declines gradually, the Fed may hold its policy rate at 5.00-5.25% until the end of 2023. At this time, markets largely view that the Fed may not cut its policy rate during 2023, given that the US economy has not shown signs of a significant slowdown as compared to the prior estimate.

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Econ Digest