Published June 12, 2022 3:00 pm est
by Richard F. Cason, 
Editor in Chief,
NewsMovesmarketsForex
The Key Issues-
- The FOMC meets Wednesday June 15th facing a full plate of Main Stream U.S. Economic Dilemma’s, which includes: run away Inflation, CPI peaking over 8.4%, U.S. Gas Prices hitting Weekly high over 5$ a gallon, Sky Rocketing Food prices, China COVID-19 Lock downs- disruption of global supply chains
- The Fed highly expected to raise interest rates by .50 bps, Pushing the Interest Rate up to 1.5%
- Fed Central Bank Committee has a tedious tight rope to walk, Inflation verse Recession
- FED’s Chair Jerome Powell stated the following message to the American people after May’s FOMC monetary policy meeting: “inflation is much to high we understand the hardship that this is causing and we are moving expeditiously to bring it back down we have the tools we need and the resolve it will take to restore price stability on behave of the American families and business.”
- Labor Markets are moderately stable with Unemployment remaining steady at 3.6%,May’s Non Farm Payrolls rising by 360,000 news jobs added to the economy
- Despite that being said: current U.S. GDP reports showing two second consecutive quarters of negative growth, this could possible spell a recession is the next major throbbing economic headache coming down the pike for the American people.
So let’s take a look at a brief recap of this pending situation: the Federal Open Market Committee is schedule to meet on June 15, 2022 in Washington DC, to make a decision on key U.S. monetary policy concerns, including interest rates. It is highly anticipated by a global spectrum of broad stream Economist that the Fed will raise rates by .50 bps in Junes Meeting.
Analysist on FOMC 2022 Junes Monetary Policy Interest Rate Decision
I specifically asked world renowned Chief Economist and Global Strategist Mr. Marc Ostwald , with ADM Investor Services International, Head Quartered in London England ,
to chime in with his expert take opinion on what he thought the Fed would do in Junes next week Monetary Policy meeting regarding the Interest Rate decision, stated: “Fed: Friday’s CPI will have been a major disappointment, particularly core CPI, although it should not have been a surprise to the FOMC, and unsurprisingly markets have moved to discount a 75 bps hike at this or the July meeting.
But two things argue for 50 bps and against 75 bps a) Powell has already rejected a 75 bps move, and if they did hike by 75 bps, they would effectively lose control of forward guidance on the trajectory and become hostage to markets goading them to be even more aggressive. To be sure, they have been wrong on the inflation outlook, and yes they are behind the curve (but then again so are most other central banks, above all DM).
b) They have underlined that they are keeping a close eye on financial conditions (see attached chart of GS US Financial Conditions), and these are after Friday’s jump in yields, equity market tumble and credit spread widening, and persistent volatility across all asset classes, not to mention sky rocketing house prices (not part of index), conditions are rapidly approaching the recent peak, which is close to the danger zone (above 99.50, see 2018/2019 for comparison, rather than pandemic spike).
They learnt a hard lesson in 2018/2019 that fixating on a specific ‘neutral rate’ and ignoring tightening financial conditions is not good policy making, so adding fuel to the current fire with a 75 bps hike would be very risky. While they are upbeat on the economic outlook and labour market, they do not want to find themselves being attacked by the political fraternity (and they are already under pressure), above all in a mid-term elections year.
They also know that rising rates and withdrawing QE will not resolve any supply chain disruptions or structural issues, and may in fact exacerbate them, above all by crimping investment, as well as demand. Be that as it may, they have a serious dilemma on how they ‘sell’ this to markets and preserve some credibility.
As the example of the ECB on Thursday demonstrated, if central banks are vague and wishy washy (as the ECB was about its instrumentation to curb peripheral spread widening), they risk losing any control of the narrative, and per se engendering even more financial instability.”
“This month’s outturn will have little bearing on the Fed’s rate decision next week or in July, and with gasoline prices hitting a fresh high this week (av. $5.00 per gallon) June CPI will also remain high in m/m terms. To justify a pause after September, energy and food pressures will have to moderate substantially in July & August, as more modest 2021 m/m gains of 0.5% and 0.3% fall out of the comparison.”
So the peak in headline inflation in y/y may still be quite a few months away, and while core CPI may have peaked, it is unlikely that Q3 CPI readings are going to allow the Fed to pause.
However to borrow a quote from Robert Solow back in 1979 in the New York Times, the problem is “To try effectively to wipe out hard core inflation by squeezing the economy is possible but disproportionately costly. It is burning down the house to roast the pig.” This sums up the Fed’s and every other central bank’s dilemma.
Don’t forget to catch our latest in depth story on the FOMC CENTRAL BANK May’s Interest Rates Decision, FOMC INCREASE INTEREST RATES TO 1.0%, AMID RUN AWAY INFLATION, LABOR MARKET IMBALANCE
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Contributing Expert Economist
Marc Ostwald an expert Chief Economist & Global Strategist with ADM Investor Services International
Marc Osterwall is a world renowned Expert Economist who Analyzes and forecast macro/microeconomic trends and central bank policies on a exponential economic level. Mr. Osterwall is a regular guest on Bloomberg BNN, HT & Radio, BBC, CNBC, Le Fonti International and is widely quoted on newswires, newspapers, and other digital media worldwide. He is also a regular conference speaker and guest lecturer at various universities.
