Go to:

June 2018
< May Jul >
Leaguer Email Subscription

You are not currently subscribed. Click Subscribe below to receive the Leaguer email.

Fed Seen Holding Rates This Week with Hike Still on Horizon
Wednesday, April 27, 2016 6:40 AM

U.S. Federal Reserve policymakers are expected to hold interest rates steady when they meet this week, but may tweak their description of the economic outlook to reflect more benign conditions, leaving the path open for future rate rises, according to Reuters.

The Fed raised its policy interest rate last December for the first time in a decade when market volatility finally subsided in the wake of a scare over China's economy.

Similarly, early this year markets wobbled on worries about a slowdown in global economic growth and weak U.S. corporate earnings, leading to expectations for further Fed rates rises to be revised down, so Fed policymakers may be wary of this week sending too strong a message of an imminent policy tightening.

Many Fed officials remain spooked by the steep stock market drop earlier this year and by weak first-quarter U.S. economic data. Concrete signs of higher inflation and growth may be needed before the FOMC, the Fed's policy committee, continues with the projected gradual path toward more normal levels of interest rates.

Though the U.S. economy is generating jobs and consumer prices have risen, providing support for a Fed interest rate rise, weakness in retail sales and international trade, as well as concern about China's economy, are among reasons Fed Chair Janet Yellen will stay cautious about further rate hikes before the second half of the year.

Markets have already anticipated such an approach, seeing no chance of a rate increase at this week's meeting on April 26-27 of the Federal Open Market Committee (FOMC), and are pricing in just a one in five chance of a move at the next meeting on June 14-15. Reuters polling of market participants sees two rate hikes this year.

"I don't think they can pull off a June hike without triggering another round of volatility, and they don't want that because the selloff in January and February left a deep scar," Aneta Markowska, chief U.S. economist at Societe Generale, said in New York.

"The FOMC can't go too hawkish overnight because markets aren't pricing in anything close to that."

Read more at Reuters.