FTN Financial Chief Economist Chris Low on Wednesday revealed what he believes will “appease the Fed” shortly after the central bank raised its benchmark interest rate by 75 basis points for the second consecutive month.
The move threatens to slow US economic growth and exacerbate financial pressure on Americans.
Low told ‘Making Money with Charles Payne’ that he thinks falling inflation data will prompt the Federal Reserve to rein in the aggressive actions the central bank has taken to try to rein in searing inflation. .
The Labor Department revealed earlier this month that inflation accelerated more than expected to a new four-decade high in June, as the price of basic necessities remains painfully high, exacerbating pressure financial support for millions of Americans.
FED RAISES INTEREST RATES BY 75 BASIS POINTS IN ANOTHER HISTORIC MOVE TO TACKLE INFLATION
The department said the consumer price index, a broad measure of the price of everyday goods, including gas, groceries and rent, rose 9.1% in June from to a year ago. Prices jumped 1.3% in the month-long period from May. Those numbers were both well above the headline figure of 8.8% and the 1% monthly gain predicted by economists at Refinitiv.
The data marked the fastest pace of inflation since December 1981.
Energy prices rose 7.5% in June from the previous month and 41.6% from a year ago. Gasoline costs on average 59.9% more than a year ago and 11.2% more than in May.
Low said he thinks the next CPI report “will probably be benign.”
“Gasoline prices are actually down 10% from their peak,” he told Payne. “They peaked in the survey for the last CPI, so they will be down in this CPI.”
“But I think it’s going to do more than one good CPI report to calm the Fed down,” he continued.
“We’ve had three waves of inflation since the end of last year. Each one has been higher, so we need to see lower highs [and] lower on these waves of inflation.”
July CPI data is expected to be released in two weeks.
The three-quarters of a percentage point hikes in June and July – the first since 1994 – underscore how serious Fed officials are about tackling the inflation crisis after a series of alarming economic reports. Policymakers voted unanimously to approve the latest high-rise hike.
The move puts the main benchmark federal funds rate in a range of 2.25% to 2.50%, the highest since the pandemic began two years ago. This is the fourth consecutive rate increase this year.
HOW HOUSING IS FEEDING INCREASING INFLATION
Policymakers signaled in their post-meeting statement that further increases are likely in the coming months as they remain “strongly committed to bringing inflation back to its 2% target.”
Chairman Jerome Powell said in his post-meeting press conference that another 75 basis point hike might be appropriate going forward, but that ultimately hinges on upcoming economic data.
Efforts to fight inflation carry the potential risk of recession, with a growing number of economists and Wall Street firms predicting an economic slowdown this year or next. Rising interest rates tend to create higher rates on consumer and business loans, which slows down the economy by forcing employers to cut spending. Mortgage rates have nearly doubled over the past year to 5.54%, while some credit card issuers have hiked rates to 20%.
Low told Payne that it doesn’t look like the US is currently in a recession, but it’s probably “on the verge of having one.”
He also warned that if the Fed “continues to tighten”, the recession will be severe.
Signs of the economy’s health are mixed: the number of Americans filing for unemployment benefits has steadily increased, companies have announced layoffs or hiring freezes, and the housing market is weakening. At the same time, unemployment remains near historic lows and consumers continue to spend heavily despite high inflation.
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Fed officials acknowledged signs of slowing activity in the economy since meeting last month, including a slowdown in spending and output, but pointed to “robust” job gains and an almost historically low unemployment rate. Powell reiterated on Wednesday that officials believe there is a “pathway” to a soft landing, although he acknowledged it has narrowed – and could narrow further.
Megan Henney of FOX Business contributed to this report.