Fed Prepares Another Rate Increase as Wall Street Wonders What’s Next

American employers added 372,000 jobs in June, and wages continue to climb strongly. Consumer spending has eased somewhat, but less than expected. While the housing market is slowing, rents continue to pick up in many markets.

Plus, the outlook for inflation is dicey. While gas prices may be slowing for now, risks of a resurgence lie ahead, because, for example, the administration’s efforts to impose a global price cap on Russian oil exports could fall through. Rising rents mean that housing costs could help to keep inflation elevated.

While Mr. Powell made clear at his June news conference that three-quarter-point rate increases were out of the ordinary and that he did “not expect” them to be common, Fed officials have also been clear that they would like to see a string of slowing inflation readings before feeling more confident that price increases are coming under control.

“We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner,” Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said in a Bloomberg interview this month.

The central bank will get a fresh reading on the Personal Consumption Expenditures index — its preferred inflation gauge — on Friday. That data will be for June, and it is expected to show continued rapid inflation both on a headline basis and after volatile food and fuel prices are stripped out. The Employment Cost Index, a wage and benefits measure that the Fed watches closely, will also be released that day and is expected to show compensation climbing quickly.

Given the recent decline in prices at the gas pump, at least two months of slower inflation readings by September are possible — but not guaranteed.

“They cannot prematurely hint that they think victory over inflation is coming,” Mr. Shepherdson of Pantheon wrote.

Article source: https://www.nytimes.com/2022/07/25/business/economy/fed-interest-rate-increase.html