FED READY TO RAISE RATES SHARPLY AGAIN IN JULY

More members of the U.S. Federal Reserve’s rate-setting Open Market Committee are ready to raise the key federal funds interest rate another three-quarters of a point at the group’s meeting next month, the Financial Times reported.

Michelle Bowman, a member of the Fed’s board of governors, voiced support for the bump “based on current inflation readings.” 

Increases of “at least” a half-point at each of the committee’s next few meetings likely will be needed “as long as incoming data support them,” she added.

“In my view, our number-one responsibility is to reduce inflation,” she said.

On 26 June, Christopher Waller, another Fed governor, said the central bank is “all in on establishing price stability” and that he plans to support another three-quarter-point hike next month if the data is as expected.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, has been more reluctant than many of his colleagues to raise the rate so much so quickly, but he recently said that a three-quarter-point rise next month might be necessary.

Most bank officials now expect the benchmark Fed funds rate to climb to 3.75 percent by December, according to the FT.

TREND FORECAST: The Fed, like other central banks in G7 countries, waited too long to begin raising interest rates to tackle inflation.  Now it has to play catch-up, a game that will result in a lose-lose situation. 

To master inflation, the Fed would have to raise interest rates so high so fast that the economy would crash. And considering how the economy was ramped up with fake cheap money and historically low interest rates, even raising rates to 3.75 by December would crash the economy without, by itself, defeating inflation.

Instead, the Fed will steadily raise its rate by increments while it keeps on hoping that supply lines will continue to unkink themselves, solving shortages that push up prices, and that high prices will force consumers to sit on their wallets, cooling demand and allowing prices to drop back to some degree.

That strategy itself is risky. Rising prices and a weakening economy are teeing up the U.S. and the rest of the world for Dragflation, our Top 2022 Trend in which prices rise in a shrinking economy.