Federal Reserve Gears Up For Another Rate Hike In Crucial Week For Central Banks

Federal Reserve policymakers are expected to raise rates again on Wednesday to the highest level seen in 22 years.

What Happened: The Federal Reserve and the European Central Bank are expected to raise interest rates by 25 basis points. However, the key focus will be whether policymakers will implement future rate hikes or plan an extended pause, Bloomberg reported. 

According to the outlet, Fed Chair Jerome Powell and ECB President Christine Lagarde have expressed concerns about persistently high inflation, leading them to increase borrowing costs. 

However, with neither central bank holding another meeting until September, economists believe the policy outlook for the latter part of the year remains to be determined.

In contrast, the Bank of Japan stands out as an outlier, with over 80% of analysts predicting that Governor Kazuo Ueda will continue supporting the world's third-largest economy, even as inflation remains above their 2% target. 

Bloomberg reported that the Federal Open Market Committee will most likely raise rates by a quarter point, bringing the range to 5.25%-5.5%, marking the 11th increase in the past 16 months.  

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The rate decision is scheduled to be released at 2 p.m. EST in Washington, with Powell holding a press conference 30 minutes later.

The July hike comes after a pause in June that was put in place to moderate the pace of increases as rates approach a sufficiently restrictive level to bring inflation back to the 2% target over time.

"Inflation is slowing, but not quickly enough for the Fed," James Knightley, chief international economist at ING Financial Markets LLC, told Bloomberg. "With the jobs market remaining firm, officials are taking no chances."

As a quarter-point rate hike this week appears highly likely, attention will shift to Lagarde's characterization of the ECB's policy plans beyond July, Bloomberg reported.   

Officials have emphasized that decisions will be data-driven, and September might be the first month they genuinely adhere to that principle.

Now Read: Fed Pauses Interest Rates: A Short-Lived Break — Or The End For The Hiking Frenzy? 5 Economists React

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