Awaited Fed’s decision between inflation and recession fears

Most economists expect the Fed to hike rates by 75 bps once again. Fed Chair Jerome Powell’s message on accepting pain to pin down inflation is expected to give a push to the US dollar.

The American central bank is set to hike interest rates by 75 basis points for the second successive month, placing borrowing costs at a range of 2.25-2.50%, matching the post-financial crisis high. Will climbing down from a 100 bps cool down the dollar? Not immediately, as economists suspect Fed Chair Jerome Powell will sustain his open-ended commitment to crushing inflation, even if it results in recession.

While the price at the pump is off its $5/gallon peak, costs of everything else are rising. The Fed focuses on core inflation, which excludes volatile energy and food costs, and data for the last three months have shown that it is rising at an annualized pace of roughly 8%. The bank´s target is 2%.

In 2022, price rises are more widespread. Efforts by the Fed to cool demand with a total of 150 bps in three months have yet to encourage Americans to save money instead of taking loans, the way higher borrowing costs are meant to work.

While consumers may tell surveyors they are unhappy about the state of the economy and that the country is on the wrong track, they hardly seem to hesitate when it comes to new purchases. Such spending sprees make sense when employment remains high and is growing at a fast pace.

Nonfarm Payrolls have exceeded expectations in five out of six releases so far in 2022. The Fed has been successful in securing full employment, its second mandate is currently underprioritized due to the focus on inflation.