Stocksak: Fed sees a half-point rise in December by Fed

© Stocksak. FILE PHOTO – A trader works on the New York Stock Exchange (NYSE), in New York City, U.S.A, July 26, 2022. REUTERS/Brendan McDermid

By Ann Saphir

(Stocksak). The Federal Reserve is now expected to reduce its aggressive rate-hike policy that began in December. Economic data published Thursday provided further evidence that the Federal Reserve is attempting to slow down the economic slowdown.

Futures traders that are tied to short-term U.S. rates are still heavily betting on the Fed raising its rate by a fourth time next week. However, rate futures prices point to a half-point rate increase at Fed’s December meeting — bringing it to a range of 4.25%-4.5% — and no more that a quarter of a percentage point over the next two meetings.

Data Thursday showed that U.S. economic growth rebounded during the third quarter. However the same report showed that consumer spending slowed at a 1.4% pace from the prior quarter’s 2.0% pace. And the GDP deflator — an estimate of price pressures – slowed down to 4.1% from 9% in the prior quarter. Unexpectedly, a separate report showed that non-defense U.S. capital products orders fell, which is considered a proxy of business spending.

The slowdown in consumer spending is “a good indication that higher interest rates are biting into the pocketbooks of the consumer,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The Fed has increased interest rates by an impressive three percentage points this year. Although the housing market has seen a slowdown, evidence that higher interest rates are cooling demand in other areas of the economy is not evident.

Fed policymakers indicated that they will continue raising interest rates to bridle the demand in an effort to bring down inflation running much higher than the Fed’s 2% target.

Thursday’s data suggests that the tide is turning and more could be ahead

Richard Moody, Regions’ economist, wrote that “Real consumer spending will fall further on goods, services spending will slow down, there are signs of business investment being wavering, and housing market reeling under the burden of higher mortgage rates.” “Moreover, the full economic impact of higher interest rate has yet to be felt.”

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