What to expect from the US Federal Reserve's announcement today?

15 Jun 2022 , 01:00 PM

On Friday of last week (10-06-2022), the US government’s labor department issued inflation numbers. According to the data, the Consumer Price Index (CPI) climbed 8.6% year over year in May 2022. This is the greatest level in the previous four decades. When compared to the Fed’s tolerance ceiling of 2%, the CPI readings are uncomfortably high.

“Policymakers usually consider that a desirable inflation rate is approximately 2% or slightly below,” according to the Federal Reserve website.

Today, the Federal Open Market Committee (FOMC) will announce the new interest rates.

Furthermore, according to Reuters, the European Central Bank’s rate-setting Governing Council will conduct an emergency meeting on Wednesday (15-06-2022) morning to review the recent sell-off in government bond markets.

Bond rates have increased considerably since the European Central Bank announced a series of rate rises last Thursday, and the disparity between German and more indebted southern countries, notably Italy, has widened to its widest in over two years, according to the research.

“On Wednesday, the Governing Council will convene ad hoc to discuss current market developments,” an ECB official told Reuters.

Experts expected the following from the FOMC statement in order to attain the desired inflation rate:

“Inflation has been permitted to spiral out of control by the Federal Reserve. As a result, the stock and credit markets have lost faith in the Fed. If the Fed takes bold action with 75 basis points tomorrow and in July, as well as a commitment, market confidence may be restored “According to Bill Ackman.

Former US Treasury Secretary Lawrence Summers stated, “Returning to 2% core CPI inflation now will consequently need about the same level of disinflation as achieved under Chairman Volcker.”

“In my opinion, the Federal Reserve should raise the Fed Funds rate to 3% tomorrow,” Jeffrey Gundlach stated.

“In order for the Fed to meet its 2.0 percent objective, core inflation must be reduced by 2.8 percent. This is far less than Volcker’s 5.3 percent “rcent,” said Robert Gordon, a Northwestern University economist and professor.

“If inflation is as firmly ingrained in the public’s mindset today as it was in the 1970s,” he continued, “getting it down to 2% will be difficult – even if Powell’s issue is only half as great as Volcker’s.”

“I believe you must be conservative in your assessment of what we know about the inflation process. And I’m afraid things are just going to get worse. At this rate, we might easily reach 9%,” Allianz SE’s Mohamed El-Erian remarked.

“Today’s US economy is a mixed bag. It’s probable that a recession will occur. Economists are notoriously lousy at forecasting recessions, but I believe the Fed has a good chance, a reasonable likelihood, of a “soft-ish landing,” as former Federal Reserve Chair Ben Bernanke put it.

“It seemed certain that this inflation would not be ephemeral, and that the Fed would have to move faster than they anticipated.” There was a genuine possibility of a recession. I used to believe it was around 30%. It’s probably closer to 50 percent currently, not 100 percent. Morgan Stanley CEO James Gorman said, “It behooves you to be a bit cautious.”

“We haven’t had a recession since 2008, so we’re overdue,” but it might not come this year. According to Leon Cooperman, Chairman of Omega Advisors, we have had a “very, very poisonous mix of fiscal and monetary policy.”