A one-half percent raise in interest rates is expected when the Federal Reserve meets this week.

Because of the pandemic, for the better part of two years we had no news from the Federal Reserve’s Open Market Committee after they lowered rates to historic lows.  Obviously, a different story is unfolding in 2022. We have already had two short-term rate increases by the Fed this year and each time we meet the question is not whether they will raise rates, but by how much they will raise rates.

This week, the big money is on a half of one percent increase, and we are guessing that the markets will not react negatively if this prediction comes to fruition.  Interestingly enough, the recent news pointing to an economic slowdown is starting to change the narrative from “six or seven” increases this year, to perhaps a few less. Of course, the Fed needs to see some progress on their war against inflation before this softer stance becomes a reality. Indeed, we have seen some evidence that inflation is starting to peak, outside of the two volatile components which are heavily affected by the war in Ukraine. Though last week’s consumer inflation report did not show evidence of a peak.

These components are food and energy. The presence of these factors is why we see two measures of inflation every month.  The second measure is the “core” inflation, which does not count food and energy.  It is not likely that food and energy inflation will dissipate while the war and embargoes are in place. Though, any type of world-wide economic slowdown could affect energy consumption.  It will be interesting if these factors will make an appearance in the Fed statement after the meeting. We know the markets will be hanging on every word.