The front of the United States Federal Reserve Board building is shown in Washington. REUTERS/GARY CAMERONU.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.
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One option, viewed as the most hawkish, would be to repeat what the central bank said in October, just prior to its first rate hike in December, when the Fed said it was mulling “whether it will be appropriate to raise the target rate range at its next meeting”.
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.
Investors will also get fresh readings on a slew of economic data, ranging from March new home sales set for release today to durable goods sales Tuesday to the initial reading on first quarter USA economic growth. Other officials, including Loretta Meister of the Fed’s Cleveland regional bank, have expressed concern that the central bank may fail to avert high inflation if it delays raising rates much longer.
The minutes to the Fed’s last meeting show some advocating an earlier rate hike to ensure the Fed does not miss the boat when inflation picks up.
Two of the economists polled said they believe the Fed will not raise rates at all for the remainder of 2016.
“The FOMC can’t go too hawkish overnight because markets aren’t pricing in anything close to that”. Despite a healthy US job market, with the global economy struggling and USA inflation still subpar, many economists see little likelihood of a rate hike even before the second half of the year.
Consumer confidence has been solid but choppy this year, largely in response to a volatile stock market.
“And I would not be surprised if there is no Fed hike this year”, Sohn said.
But this time, that’s not enough.
Some Fed officials point to the positive developments as a sign of US resilience and lower risks, which could prompt higher interest rates in June. Any major global slump would, in turn, hinder USA growth. Still, PNC projects that the housing market will improve throughout the year due to low mortgage rates and an increase in rental prices.
Clues could lie in their assessment of whether the economy appears more likely to fare better or worse than their forecasts – the so-called balance of risks.
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Such a cautious gesture next week could pave the way for Yellen to later use a speech to clearly signal the Fed’s intentions for June.
