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Anticipated Fed Interest Rate Hike in June: A Response to Persistently High Inflation and Elevated Market Prices

Amid sky-high market prices, the U.S. Federal Reserve is poised to further tighten its monetary policy, as predicted by the Polish Economic Institute in its latest “PIE Monthly” release. A hike in interest rates is expected this June – a shift from the current 5.25% to 5.50%, which analysts predict will be the final rise in this monetary cycle.

As analysts anticipate, the Federal Reserve is preparing to increase interest rates once again in June. However, they also note this is likely to be the last increase for this cycle. Surging inflation and robust labor market indicators suggest that a lengthier pause may precede future reductions in the rates.

Since real interest rates are comparatively low, this move stands in contrast to previous periods of monetary policy tightening. The first cuts to interest rates are projected towards the end of 2023 or in early 2024, but the extent of these reductions is predicted to be relatively modest. The Fed’s aim is to keep interest rates comparable to, or slightly above, inflation levels, indicating a continuation of its current restrictive monetary stance.

A significant point of concern is the stubbornly high inflation rate, which according to PIE economists, remains a prominent issue. They point to a 7.0% peak in the PCE inflation rate in June of last year. Since that peak, the rate has been on a downward trend, hitting 4.2% in March and then slightly rebounding to 4.4% in April. A large part of this decrease was driven by declining food and energy prices. However, these price reductions are set to lose their impact from September onwards, due to a lower comparative base, leaving consumers grappling with high prices in the market.