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FOMC: Here's what experts expect from US Fed announcement today

Experts' expectations from the FOMC announcement to achieve its desirable inflation rate of 2 percent.

June 15, 2022 / 12:40 PM IST

The labour department of the US government released inflation data on Friday last week. According to the figures, Consumer Price Index (CPI) increased 8.6 per cent in May 2022 from an year earlier. This is the highest figure in the last 4 decades. The CPI figures are uncomfortably high as compared to the Fed's tolerance limit of 2 per cent.

According to the Federal Reserve website, "Policymakers generally believe that an acceptable inflation rate is around 2 percent or a bit below."

The Federal Open Market Committee (FOMC) is scheduled to announce the revised interest rates today.

Additionally, European Central Bank's rate-setting Governing Council will hold an unscheduled meeting on Wednesday morning to discuss the recent sell-off in government bond markets, a spokesperson said as reported by Reuters.

Bond yields have risen sharply since the ECB promised a series of rate hikes last Thursday and the spread between the yields of Germany and more indebted southern nations, particularly Italy, soared to its highest in over two years, the report added.

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Also Read | ECB to discuss market rout in unscheduled meeting

"The Governing Council will have an ad-hoc meeting on Wednesday to discuss current market conditions," an ECB spokesperson told Reuters.

Here is what experts expect from the FOMC announcement to achieve its desirable inflation rate:

"The Federal Reserve has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed. Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July, and a commitment," Bill Ackman said.

"To return to 2% core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker," Lawrence Summers, Former US Treasury Secretary, said.

"The Federal Reserve should raise the Fed Funds rate to 3% tomorrow, in my opinion," said Jeffrey Gundlach.

"The Fed's task in achieving its 2.0% target requires a reduction of core inflation of 2.8%. This is much less than Volcker's 5.3%,"

Robert Gordon, Economist & Professor, Northwestern University, said.

"If inflation is as deeply rooted in the public's psychology today as it was in the 1970s, bringing it down to 2% will be painful -- even if Powell's problem is only half as big as Volcker's," he added.

"I think you've got to be very modest about what we know about this inflation process. And I fear that it's still going to get worse. We may well get to 9% at this rate," Mohamed El-Erian, Allianz SE, said.

"The US economy today is a mixed bag. A recession is possible. Economists are very bad at predicting recessions, but I think the Fed has a decent chance, a reasonable chance of what Jay Powell calls a 'soft-ish landing," Ben Bernanke, Former Federal Reserve Chair, said.

"It was inevitable this inflation was not transitory, it was inevitable the Fed would have to move faster than they were projecting. There was a legitimate recession risk. I used to think it was about 30%. It's probably more like 50% now -- it's not 100%. It behooves you to be a little cautious," James Gorman, CEO of Morgan Stanley, said.

"There hasn't been a recession since 2008, so "we are overdue" however it may not happen this year. We have had a "very, very toxic combination of fiscal, monetary policies," Leon Cooperman, Chairman, Omega Advisors, said.
Moneycontrol News
first published: Jun 15, 2022 10:41 am
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