The U.S. Federal Reserve and the Inflation Conundrum

For the past 16 months, the U.S. Federal Reserve has been grappling with inflation anxiety while keeping interest rates steady. However, on Tuesday, the central bank’s Federal Open Market Committee (FOMC) is set to commence deliberations, and all signs point to an upcoming 25 basis point rate hike, sparking widespread concern about the ongoing inflation threat.

Forecasted Rate Hike and Its Impact

The CME Rate Watch tool indicates a 98% probability of a quarter point increase, which would elevate the federal funds rate to a range of 525 to 550 basis points. This potential hike could bring the rate to its highest level in approximately 17 years. Last month, the FOMC temporarily suspended its 15-month trend of monetary tightening, briefly raising hopes that a more dovish approach might be adopted in the foreseeable future. However, the bank’s statement following the decision suggested that inflation remained a significant concern, leaving the door open for further rate hikes.

FOMC’s Monetary Policy Stance

The FOMC emphasized its commitment to monitoring incoming information to shape its economic outlook and make necessary adjustments to monetary policy. Various factors, including labor market conditions, inflation pressures, inflation expectations, and global developments, will be taken into account during their assessments.

Impact on Crypto Markets

Interestingly, despite the macroeconomic developments, the cryptocurrency markets have shown resilience. Bitcoin, for instance, has been trading within a range of $29,000 to $31,500 for a significant part of the last two months. However, the market currently awaits a fresh catalyst to excite Bitcoin traders.

Key Economic Indicators to Watch

The following economic indicators will play a crucial role in shaping the Federal Reserve’s decisions:

1. Consumer Confidence Index (CCI)

The Conference Board’s latest Consumer Confidence Index, scheduled for release on Tuesday, will offer insights into consumer sentiment about the economy. Last month, the CCI surged to 109, marking a seven-point increase from May and the highest level since January 2022. A potential rise to 112 is anticipated, but it’s worth noting that consumers have not entirely dismissed the possibility of a recession.

2. Jobless Claims

Jobless claims data, to be reported on Thursday, will provide the latest information on economic growth. Last week’s jobless claims were lower than expected, leading to optimism in the job market. However, the forecast for the week ending July 22 suggests a slight increase in first-time claims to 235,000.

3. Durable Goods Orders

The May data from the Census Bureau revealed a 1.7% rise in durable goods orders, marking the third consecutive monthly gain. This trend indicates a positive outlook for the U.S. economy. Expectations are set at a 1.5% rise in June, indicating continued growth.

4. Personal Consumption Expenditures (PCE)

The Federal Reserve’s favored inflation measure, the PCE, has been showing a decline over the past year, which is good news for inflation watchers. May’s year-over-year reading stood at 3.8%, down from the start of the year’s over 5%. However, core PCE, which removes volatile food and energy costs, has oscillated between 4.6% and 4.7% in the last three months, raising some concerns. June’s expectations are more optimistic, pointing to a 4.2% reading.

Conclusion

The U.S. Federal Reserve’s battle with inflation anxiety and its imminent interest rate hike have garnered significant attention. As the FOMC deliberations begin, market participants closely watch the impact of these decisions on the economy and various asset classes. The forthcoming economic indicators will further shape the Federal Reserve’s policies, aiming to strike a balance between containing inflation and supporting economic growth.

For more articles visit: Cryptotechnews24

Source: coindesk.com

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