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Fed Expected to Raise Rates This Week
Wednesday, June 14, 2017 6:30 AM

The Federal Reserve will raise rates this week and signal they expect to follow through with another move later this year, economists said. Low inflation readings and soft growth in the first quarter will not change the central bank’s mind that rate hikes are prudent with the unemployment rate so low.

“I think they are going to raise rates and stay on the current course,” said Ryan Sweet, an economist at Moody’s Analytics.

Fed officials have said they are not worried about the strength of the economy. They view weak first quarter growth as transitory and believe inflation will resume rising toward the central bank’s 2 percent target.

This would be the third Fed interest rate hike in seven months. The central bank will also release updated economic forecasts and Fed chair Janet Yellen will hold a press conference.

One interesting twist is that the May consumer price and retail sales reports will be also be released on Wednesday morning during the Fed’s two-day deliberations. The data is unlikely to change the outcome for a rate hike in June, but softer than expected data could put a September rate hike at risk and potentially change the tone of the Fed’s policy statement, said Seth Carpenter, economist at UBS.

Economists are more divided about what the central bank will say this week about its plans to shrink its balance sheet. The big question is whether the central bank will start the roll-off in September or December, assuming the economy stays on course.

Analysts are looking to see if the Fed alters the language in its policy statement that it plan to hold its balance sheet steady “until normalization of the level of the federal funds rate is well under way.”

Most economists don’t expect this language change. Instead, they see Yellen providing some color about the Fed’s plans in the press conference and this would signal a December start for the run-off.

Economists believe the Fed will pencil in one more rate hike this year and three rate hikes in 2018, bringing the federal funds rate up to 2.1 percent at the end of 2018.

Source:  MarketWatch