• The Federal Reserve (Fed) is likely to raise its policy rate before the end of 2020, as Chairman Jerome Powell reiterated that the Fed remains committed to bringing inflation down to 2%.
• However, some economists suggest that achieving this target may be difficult and have proposed that the Fed should target 3% inflation instead.
• According to the CME FedWatch tool, odds of a rate hike at the Fed’s next meeting in September rose to 19%, while odds of another hike this year rose to 52.1%.
The Federal Reserve Remains Fixated on 2% Inflation Target
The market now predicts that another rate hike will occur before the end of the year. The likelihood of another Federal Reserve policy rate hike grew stronger on Friday after Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium. During his speech , Powell reiterated that the Federal Reserve remains committed to bringing inflation down to 2%, despite some economists suggesting that achieving that target may be difficult. “Two percent is and will remain our inflation target,” said Powell.
Achieving Target May Require Below-Trend Economic Growth
Getting there, he added, will require a “period of below-trend economic growth.” So far, however, the Fed isn’t getting the results it needs, as the economy “may not be cooling as expected,“ he continued. Earlier this week, popular economist Paul Krugman wrote a piece for the New York Times arguing that the Fed may want to target 3% inflation instead; arguing that 2% is “probably bad economics.“
Odds Of Rate Hike At September Meeting Rise To 19 Percent
After his speech ,the odds of a rate hike at the Fed’s next meeting in September rose to 19%, according to CME’s FedWatch tool. Meanwhile,the odds of another hike this year rose to 52.1 % – a two-month high .Rate cuts ,which many expect will trigger more investment into crypto and stocks ,are not expected until June 2024 .
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Despite concerns regarding economic growth and difficulties reaching target goals ,it appears likely that there will be another policy rate hike before 2021 arrives .However ,this potential increase could pave way for beneficial investments opportunities in crypto and stocks which may benefit from cuts further down line .