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When determining the parameters of monetary policy, the leaders of the Fed are guided by 3 key indicators: GDP, inflation rate and the state of the labor market. If the job market continues to please Fed officials, deteriorating GDP numbers and accelerating inflation pose a difficult task for US central bank' leaders to contain inflation without harming the economy.
As a result of the May meeting, when the interest rate was raised by 0.50%, the Fed leaders signaled the possibility of 2 more similar rate increases at the June and July meetings. In view of this, it is widely expected that following the results of the meeting, which will end on Wednesday with the publication (at 18:00 GMT) of the decision on the interest rate, it will be raised again by 0.50%. At 18:30, a press conference will begin, and if the rhetoric of the accompanying statements by Fed leaders is considered soft by market participants (Fed leaders may signal a pause in the monetary policy tightening cycle after the June interest rate hike), then the dollar and, accordingly, the DXY dollar index, may drop sharply. However, this decline is likely to be limited. In general, the dollar retains room for further growth, also enjoying strong demand as a safe-haven currency, while the Fed's monetary policy, in general, will be aimed at further tightening. As Powell has repeatedly stated before, the most important goal at the moment for him and other Fed leaders is to contain high inflation, which reached a new 40-year high in May: the CPI rose in May by another +1.0% (+8, 6% in annual terms), which turned out to be higher than the forecast and previous values. Core inflation, which excludes food and fuel prices, slowed to 6.0% from 6.2%, but was still above the forecast of 5.9%.
According to revised data from the Bureau of Economic Analysis, company profits in the 1st quarter fell by 2.3% after rising by 0.7% in the previous three months, which was the first drop in five quarters.
Now, after the publication of a series of weaker important macro data, market participants are beginning to re-evaluate the Fed's plans and prospects for its monetary policy. Therefore, investors will focus their attention on the rhetoric of the Fed members during the meeting on June 15, hoping that possible steps to raise the interest rate will not plunge the national economy into recession.
