Analysts predict that high prices will continue in the U.S. throughout the year despite the Federal Reserve’s great efforts to keep inflation under control by maintaining a hawkish stance for a year.
Brendan Murphy, Head of Core Fixed Income, North America at Insight Investing, anticipates that inflation will remain elevated in 2023, prior to the Fed’s meeting to decide on a rate hike on Wednesday.
Murphy wrote in a note released on Tuesday that while “the 2% inflation objective is unlikely to be realized in 2023,” he saw “some hope” for a more normal inflation situation by 2024.
“As the lagged effect of the Fed’s policy rate increases along with the more recent tightening of financial conditions associated with the banking sector concerns works their way through the economy, the effects are likely to be disinflationary. Those same conditions present many risks to the growth picture,” Murphy added.
The central bank is expected to hike interest rates by 25 basis points at the upcoming meeting, according to Insight Investment, but “recent market volatility could be an opportunity for them to pause at this meeting.”
So far, failing to meet the target of 25 basis points (bps) could lead some to question the Fed’s commitment to reducing inflation, which in turn would cause further challenges.
Traders have increased the probability that the Fed would raise interest rates by 25 basis points after initially pricing in both a hike and a pause.
For the first time since late December, the central bank is expected to release new rate estimates, signaling whether further rate hikes are still expected for the remainder of 2023.
