Federal Reserve policymakers are debating how much more they need to raise interest rates to ensure inflation quickly returns to a normal pace, and the calculus is likely to depend heavily on the strength of the bond market. work.
Officials will closely watch Friday’s employment report, the last reading on job growth they will receive before their July 25-26 meeting, for a clue as to how much momentum remains in the American economy.
Fed officials were surprised by the economy’s staying power 16 months into their push to slow it by raising interest rates, making it more expensive to borrow money. While growth was slower, the housing market began to stabilize and the job market remained abnormally strong many opportunities and stable salary growth. Fed officials worry that if wage growth remains unusually fast, it could be difficult to return high inflation to their 2 percent goal.
That stability – and the persistence of rapid inflation, especially for services – is why policymakers expect to keep raising interest rates, which they have already raised above 5 percent in first time in 15 years. Officials have raised rates in smaller increments this year than last year, and they skipped a rate move at their June meeting for the first time in 11 meetings. But some policymakers are clear that even if the pace is moderate, they still expect to raise interest rates.
“It may make sense to skip a meeting and move more gradually,” said Lorie K. Logan, the president of the Federal Reserve Bank of Dallas, during a speech this week, while noting that it is important for officials to follow up now by continuing to raise rates.
He added that “inflation and the labor market developing more or less as expected will not really change the outlook.”
Fed officials predicted in June that they will raise interest rates two more times this year – assuming they move to quarter-point increments – and that the labor market has softened, but only slightly. they saw the unemployment rate is rising to 4.1 percent from 3.7 percent currently.
Investors widely expect Fed officials to raise interest rates at their July meeting, and the strength of the labor market could help shape the outlook after that. While policymakers won’t release new economic projections until September, Wall Street will monitor how policymakers respond to economic developments to gauge whether another move this year is likely.