Even US Fed Chair Janet Yellen had said on May 27 that an increase in the benchmark federal funds rate, now at an ultra-low 0.25 to 0.50 percent, was likely “appropriate” at the FOMC’s meeting this month or next month.
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After months of steady growth, the United States job market appeared to hit a hiring plateau in May, adding just 38,000 new jobs. The research firm expects Fed officials to lower their forecast for the federal funds rate at the end of 2018 to 2.4% from 3%, and to just 3% from 3.3% for the longer-run.
“I’m not convinced the Fed will hike at all; in fact their next move might be a rate cut rather than a hike”, Nicholas Ferres, investment director of global asset allocation at Eastspring Investments, told CNBC’s Asia Squawk Box on Monday.
Analysts said they expected Ms Yellen to remain balanced on the outlook for the USA economy this week, as she had been during a speech at the beginning of the month.
While some analysts say a quick turnaround in the data could make July a possibility for a rate increase, CME fed funds futures contracts gave that a 20 percent possibility, and September only a 35 percent possibility. And that data point alone likely will delay any interest rate hike beyond when the Fed meets for two days during the week ahead. Low interest rates are meant to boost economic growth and cut unemployment.
Top officials of the US central bank are debating how soon and how much to raise the key interest rate, and are set to announce a decision next Wednesday (June 15).
Torsten Slok, Deutsche Bank’s chief worldwide economist, said that any monthly gain of 200,000 jobs or more, including in June, “will be an excuse for raising rates again, [and] as a result, it is too early to conclude that the FOMC will not raise rates in July”.
“Any move in the two or three months right before the US presidential election would be interpreted by many people as trying to influence the election outcome”, he said.
Americans are likely to know their new president and how their Thanksgiving turkey tastes before they get an interest-rate increase.
The Fed raised its key policy rate modestly in December from a record low near zero, where it had been since the depths of the Great Recession in 2008.
That leaves financial markets stuck in a holding pattern with renewed fears about global growth pushing against safety nets that central banks have built up over the years, according to Valentin Marinov, head of G10 FX strategy at CA-CIB.
“Weak labour market data have messed up the carefully-prepared script for the Fed’s next rate move”. But then the Labor Department reported that a disappointing 38,000 were created in May, raising fresh uncertainty about the health of the economy. And only a small group is expected to ratchet down to forecast one rate hike this year, said Michael Gregory, deputy chief economist at BMO Capital Markets.
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“They want to keep their options open”, Moody says”.
