An eagle sculpture stands on the facade of the Marriner S. Eccles Federal Reserve building in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images
Bank of America suggests that a potential government shutdown in November could halt the Federal Reserve from raising interest rates, but not for the reasons commonly believed. The bank explains that while a shutdown may slow down the economy, making a rate hike inappropriate, the main issue lies in limited access to vital inflation data. Unfunded agencies, like the Labor and Commerce departments, would be unable to produce the necessary reports on price trends, leaving central bank policymakers with inadequate information for decision-making. Bank of America U.S. economist Aditya Bhave advises that if the shutdown extends beyond a month, the Fed should postpone the November rate hike, and the future of the hiking cycle may depend on inflationary developments.
The Federal Reserve heavily relies on reports from Labor and Commerce to assess inflation. Two crucial indicators are Commerce’s personal consumption expenditures price index, which provides insights into long-term inflation trends, and Labor’s consumer price index, a widely followed measure. The absence of these indicators in November would complicate the rate decision. However, it is worth noting that market expectations already suggest that the Fed has completed its hiking cycle. The CME Group’s FedWatch measure indicates less than 30% probability of a November hike and predicts possible rate cuts starting from June 2024.
Despite market expectations, Bank of America anticipates one more rate hike from the Fed, which would elevate the key borrowing rate to a target range of 5.5%-5.75%. If the shutdown duration remains limited to a few weeks, the bank believes the Fed will have enough time to collect data and likely proceed with the rate hike. However, the certainty of the hike is contingent on inflationary trends.
The Fed’s two-day meeting concludes on Wednesday, and it is widely expected that rates will remain unchanged.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
