"Fed May Pause Rate Hikes in September After Consecutive Big Steps in June and July"

Bank of America Forecast... Bostic, President of Atlanta Fed, Also Argues "September Pause Is Reasonable"

[Asia Economy Reporter Park Byung-hee] The Bank of America (BOA) predicted that the U.S. central bank, the Federal Reserve (Fed), may not raise the benchmark interest rate in September if signs of economic slowdown appear or inflation eases after consecutive rate hikes in June and July.

According to major foreign media on the 26th (local time), BOA expected that the Fed could pause after strong rate hikes until July to assess the economic impact and whether inflation is calming down.

According to the minutes of the Federal Open Market Committee (FOMC) held on the 3rd and 4th, released the day before, most Fed policymakers agreed that a 0.5 percentage point rate hike would be necessary at the June and July FOMC meetings. However, policymakers expressed that the best approach is to tame inflation without causing a recession or a sharp rise in unemployment, and many noted that this is a challenging task.

BOA stated, "There have been small but noticeable changes in recent Fed communications," adding, "Some Fed officials have suggested that considering the difficult macroeconomic environment and the possibility of inflation easing in financial markets, the Fed should consider slowing down or pausing tightening in the second half of the year."

Raphael Bostic, President of the Federal Reserve Bank of Atlanta
[Photo by Reuters Yonhap News]

In fact, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said in a speech at the Atlanta Rotary Club on the 23rd that it might be reasonable to pause rate hikes at the September FOMC meeting. President Bostic expressed optimism that inflation would clearly begin to decline around September, stating that whether to raise rates in September ultimately depends on future inflation and how the Fed’s tightening policy affects the economy, and advocated for pausing the rate hike in September.

In the market, the prevailing view is that the Fed will continue to raise rates by 0.25 percentage points even after consecutive 0.5 percentage point hikes in June and July.

If 0.5 percentage point hikes are decided consecutively in June and July, the U.S. benchmark interest rate will reach 1.75?2%.

BOA explained, "If the benchmark rate reaches the 1.75?2% level, the Fed may judge that it has provided normalization of interest rates to the market," adding, "This judgment could give the Fed an opportunity to pause rate hikes and evaluate the impact on inflation and employment."