Economist reveals what it will take to curb the Fed

FTN chief financial economist Chris Low revealed Wednesday what he believes will “quiet the Fed” shortly after the central bank hiked 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 believes the lower inflation data will prompt the Federal Reserve to rein in the aggressive actions the central bank has taken in an effort to keep boiling inflation in check.

The Department of Labor revealed earlier this month that inflation accelerated more than expected to a new four-decade high in June as the price of daily necessities remains painfully high, exacerbating financial strain for millions of Americans.

Fed raises interest rates by 75 basis points in another historical move to tackle inflation

The department said the Consumer Price Index, a broad measure of the price of everyday goods, including gasoline, groceries and rent, rose 9.1% in June from a year ago. Prices have risen by 1.3% in the one-month period since May. These figures were both far higher than the main figure of 8.8% and the monthly gain of 1% predicted by Refinitiv’s economists.

The data marked the fastest inflation rate since December 1981.

Energy prices increased by 7.5% in June compared to the previous month and increased by 41.6% compared to last year. Gasoline, on average, costs 59.9% more than a year ago and 11.2% more than in May.

Low said he believes the next CPI report “is likely to be benign.”

“Gasoline prices are actually 10% down from where they were at their highest,” he told Payne. “They peaked during the poll for the last CPI, so they will be down in this CPI.”

The Federal Reserve

The Federal Reserve raised its benchmark interest rate by 75 basis points for the second consecutive month as it tries to keep high inflation in check. (REUTERS / Kevin Lamarque)

“But I think he will do more than just a good CPI report to calm the Fed,” he continued.

“We have had three waves of inflation since the end of last year. Each has been higher, so we need to see lower highs. [and] lower lows on those inflation waves. ”

July CPI data is expected to be released in two weeks.

The three-quarter percentage point increases in June and July, the first since 1994, underscore how serious Fed officials are in addressing the inflation crisis after a series of alarming economic reports. Politicians voted unanimously to approve the latest large increase.

The move places the key federal funds benchmark rate in a range of 2.25% to 2.50%, the highest since the start of the pandemic two years ago. It marks the fourth consecutive rate hike this year.

HOW THE ACCOMMODATION IS POWERING A HOT INFLATION

Policy makers 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”.

President Jerome Powell said at his post-meeting press conference that another 75 basis point hike might be appropriate in the future, but that ultimately depends on upcoming economic data.

Efforts to fight inflation carry a potential recession risk, with a growing number of Wall Street economists and firms predicting an economic downturn this year or next. Rising interest rates tend to create higher rates on lending to consumers and businesses, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from a year ago to 5.54%, while some credit card issuers have raised their rates to 20%.

Low told Payne that it doesn’t look like the US is currently in a recession, but it is likely to be “at the peak of one.”

He also warned that if the Fed “continues to tighten” the recession will be severe.

Mixed signals on the health of the economy: The number of Americans applying for dole has gradually increased, companies have announced layoffs or hiring freezes, and the housing market is easing. At the same time, unemployment remains close to an all-time low and consumers continue to spend a lot despite high inflation.

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Fed officials recognized the signs of slowing activity in the economy since they met last month, including a slowdown in spending and production, but indicated a “robust” job increase and a unemployment rate close to an all-time low. Powell reiterated Wednesday that officials believe there is a “path” for a soft landing, although he acknowledged that it has shrunk and may shrink further.

FOX Business’ Megan Henney contributed to this report.

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