US Fed done with rate hikes if inflation continues to ease: Expert

By Ovunc Kutlu

ISTANBUL (AA) – The US Federal Reserve will not go for any more interest rate hikes if inflation continues to ease in the country, according to a top economist.

“If inflation continues to moderate, which I anticipate, (Wednesday’s) rate hike will be the last,” Mark Zandi, chief economist at Moody’s Analytics, told Anadolu in an email interview.

“With regard to the Fed’s decision, the key to whether there will be more rate hikes is the path of inflation.”

The Fed raised its benchmark interest rate by 25 basis points on Wednesday. The target range for the federal funds rate now stands between 5.25% and 5.5%, the highest in more than 22 years.

“The current close to 5.5% funds rate will be the terminal rate,” said Zandi.

To fight record inflation, which soared to a 40-year high of 9.1% in June 2022, the Fed has undertaken one of the most aggressive monetary tightening in history.

It raised interest rates by a total of 425 points in seven hikes last year, which were followed by 25 basis points apiece on Feb. 1, March 22, and May 3.

On June 6, the central bank skipped a rate increase to assess the implications of its monetary policy on the economy and inflation.

“Even a slow, steady slowing in inflation will be sufficient to forestall more rate hikes. This seems likely given prospects that vehicle prices will fall and the growth in the cost of housing services will moderate significantly in coming months,” said Zandi.

Consumer inflation saw a 3% annual increase in June, its lowest in more than two years.

Annual producer inflation dropped to 0.1% in June, marking a significant slowdown from 11.2% in March last year, which was the largest gain on record.

Fed Chair Jerome Powell, meanwhile, has left the door open for another hike of 25 basis points this year, saying “it is certainly possible” that the central bank would raise rates in September if “the data warranted.”

However, he added that the Federal Open Market Committee could also choose to hold rates steady and would be making “careful assessments, meeting by meeting.”

On the possibility of cutting rates, Powell said the committee would decide when it would be “comfortable” in doing it.

“The bar for the Fed to cut interest rates is also very high,” said Zandi, adding it would require inflation returning to the Fed’s target of 2%.

As for rate cuts, he said: “I don’t anticipate (that) until this time next year.”​​​​​​​​​​​​​​