Last month, the US consumer price index (CPI) recorded 5.0%, indicating a clear slowdown in inflation, which was below the expected level. However, the US central bank Federal Reserve System (Fed) is still predicting a shallow economic recession will begin in the second half of this year.
The Fed is also expected to raise its benchmark interest rate through the FOMC meeting in May, as traders predicted a 68.7% chance that the US Federal Reserve would raise the benchmark interest rate by 0.25% (25 basis points) at the meeting, according to FedWatch.
This prediction differs from last month’s, where traders of the Chicago Mercantile Exchange predicted a 62.6% chance that the US Federal Reserve would freeze the benchmark rate at the FOMC meeting in May. However, the president of the Cleveland Federal Reserve Bank of the United States expressed the view that the federal key rate should be raised to a level above 5.0% to curb inflation.
Despite concerns over the recent bank run, the FOMC members agreed that the United States’ banking system remains sound and resilient. Recent macroeconomic indicators show that spending and production are drawing a gradual growth curve, with jobs increasing and the unemployment rate remaining low. However, FOMC members were still concerned that the banking crisis had the potential to lead to tighter credit conditions for households and businesses, which could strain economic activity, employment, and inflation.
In conclusion, while there is a clear slowdown in inflation, the US Federal Reserve is still taking a cautious approach to the economy. The decision to raise the benchmark interest rate through the FOMC meeting in May will depend on several factors, including the pace of economic cooling and easing of inflationary pressures. It remains to be seen how the US economy will fare in the coming months, but the Fed is committed to maintaining stability and promoting growth.
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