JThe Federal Open Market Committee of the US Federal Reserve, the guardian of the key federal funds interest rate, began a two-day meeting Tuesday in Washington and is expected to raise the benchmark rate by three-quarters of a percentage point, raising the chances of a US recession as the country’s central bank attempts to rein in inflation which is at its highest level in 40 years.
The rise will be the second straight jump of 75 basis points by the bank, which has acknowledged it has been slow to start attacking inflation and is catching up with global rivals.
So why the need for another above average hike? “High-frequency economic indicators have deteriorated, both in the United States and elsewhere,” said Tiffany Wilding, U.S. economist at bond giant PIMCO (FROM:ALV), wrote in a Tuesday note to clients. “Inflationary supply shocks have been more acute than initially expected, implying that central banks may need to engineer recessions to restore price stability.”
Expect the rate decision to come at 2 p.m. Wednesday, followed by a press conference by Federal Reserve Chairman Jerome Powell.
The government and private sector are reporting a wealth of economic data and analysis this week.
The Conference Board, a private business research firm, reported that U.S. consumer confidence fell again in July, to 95.7 from 98.4 in June, the lowest since June 2021. The group said that the data reveals a palpable pain of inflation and haunting premonitions of an economic downturn. The number is the lowest since February 2021, and a Wall Street Journal poll predicted a reading of 97.0.
On the all-important home front, the United States reported on Tuesday that purchases of new single-family homes in the United States in June fell to almost 18 months, as rising mortgage rates and high prices bit.
Also on Tuesday, the S&P CoreLogic Case-Shiller U.S. National NSA Home Price Index x, developed by Yale Nobel laureate Robert Schiller, showed that new home sales fell by 8.1% in June from a seasonally adjusted annual figure of 590,000. The Wall Street Journal’s group of economists polled produced a consensus drop of 5.2% to a seasonally adjusted 660,000. The report also revised its May data down to 642,000 from an earlier forecast of 696,000.
Tampa, Miami and Dallas posted the highest year-over-year gains among the 20 cities in May. Tampa led the way with a 36.1% year-over-year price increase, followed by Miami with a 34.0% increase and Dallas with a 30.8% increase. Four of the 20 cities reported higher price increases in the year ending May 2022 compared to the year ending April 2022, according to the report.
“Market strength continues to be broadly based as all 20 cities recorded double-digit price increases for the 12 months ended May. However, at the city level, we are also seeing signs of deceleration. Price gains for May exceeded those for April in only four cities. As late as February of this year, all 20 cities were accelerating,” the report said.
The federal government is also releasing second-quarter GDP this week, and many analysts are expecting a second consecutive quarterly slowdown. The economy contracted 1.6% in the first quarter, and two straight quarters of slowing growth is one indicator of a recession, but not the only one.
The Atlanta Fed’s live market sentiment gauge calls for another 1.6% contraction.
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