Yesterday the FOMC stopped acting like a bashful debutante – giggling behind a gloved hand at the mention of “interest rate hike”. Although it seems that the Fed may still be divided about inflation – saying that they would be watching inflation data closely before any interest rate decision is made – the meeting’s minutes showed that policymakers agreed another interest rate hike later in the year was warranted. Analysts are also expecting inflation to reach (or even possibly surpass) the central bank’s target of 2% by the end of the quarter and continue growing in the future.
If all goes according to market expectation – this would be the third interest rate hike of the year for the U.S.
But here is where the plot thickens – although the policymakers agreed that an interest rate hike may be appropriate, they were perplexed as to why the inflation rate has been recently retreating from their 2% target. If a certain crazy-haired UFO-ologist is to be believed: “Aliens!” because the FOMC definitely doesn’t know why.
What is definitive as this point and doesn’t involve the possibility of extraterrestrial meddling – is the fact that the Fed is going ahead with shrinking their bond portfolio at the beginning of this month, accrued during the economic crisis of the past few years.