The US Federal Reserve on June 13 kicked off a two-day meeting to set its benchmark lending rate, with fresh signs of cooling inflation increasing the chance it will pause its aggressive cycle of rate hikes. The Fed has raised interest rates 10 times since March 2022 as it grapples with inflation which still remains well above its two per cent long-term target.
In the previous meeting held in May, Federal Reserve Chairman Jerome Powell-led Federal Open Market Committee (FOMC) announced a hike of 25 basis points in interest rates, but signaled that it may pause further increases. The unanimous decision of the FOMC took the fed funds rate to a target range of 5 per cent to 5.25 per cent — the highest since August 2007.
Also Read: US consumer inflation cools for 11th straight month in May, rises just by 0.1%
Analysts and market participants widely expect the Fed to pause the rate hike in June. This comes as a number of officials on the central bank’s rate-setting committee have indicated they are minded to skip a hike this month, so that policymakers get more time to assess the economic impact of recent banking stress and the existing interest rate hikes.
Meanwhile, the dollar dropped to a three-week low on Tuesday on news of the smallest annual increase in inflation in more than two years, cementing expectations that the Federal Reserve will pause interest rate hikes at its two-day meeting ending on Wednesday.
The dollar index slid to as low as 103.04 following the data, and was last down 0.3 per cent at 103.21. The euro rose 0.4 per cent to $1.0795, after climbing to $1.0824, its highest since May 22.
The US consumer price index (CPI) edged up 0.1 per cent last month as petrol prices fell, after increasing 0.4 per cent in April. In the 12 months to May, the CPI climbed 4 per cent, the smallest year-on-year increase since March 2021, after rising 4.9 per cent in April. The core CPI increased 0.4 per cent in May, however, the same percentage rise for the third straight month.
“Today’s report likely does not change much for tomorrow’s Federal Open Market Committee decision, and our expectations have not changed. We expect the FOMC to keep interest rates unchanged, while signaling that market participants should not interpret this as the end of the hiking cycle,” Tiffany Wilding, managing director and economist at PIMCO wrote in a research note, according to news agency Reuters.
Know your inner investor
Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Download The Mint News App to get Daily Market Updates.
Updated: 13 Jun 2023, 11:15 PM IST