The Fed’s focus will be on employment, economic growth and, perhaps most importantly, whether inflation begins to show any evidence of increasing from its current low level to the central bank’s 2 per cent target.
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In its statement the Fed said low oil prices and poor exports early in the year had contributed to weak inflation.
The Fed is also monitoring global economic and financial developments to determine the domestic impact of slower growth in emerging markets. Just like the March meeting, Kansas City Fed President Esther George voted against today’s policy action since it did not make a 25-basis-point rate increase.
The Fed didn’t rule out a rate hike at its next meeting in June.
While the job market, household income and confidence have all improved, the Fed said other indicators of the health of the economy – most notably general economic growth consumer spending – don’t look as strong.
Traders kept their bets that the first rate hike of 2016 would come in September and gave less-than-even odds of a follow-up hike by December.
So even though from a policy standpoint the Fed appears “well positioned to announce the second rate hike in less than two months’ time”, Piezga said, “following this morning’s disappointing GDP report it’s hard to imagine a marked improvement in the economy over the next two months”.
The BoJ’s policy decision, which is often announced around noon in Tokyo, or 0300 GMT, will be a close call.
The Fed said its word: on one hand it did acknowledge some improvement in the global economy but without any hints of hikes, the dollar fell. Since then, the forecast has been adjusted to just two hikes in 2016.
Investors now see zero chance the Fed will raise rates at this week’s meeting and see a 23 percent probability of a hike in June, according to an analysis of Fed Fund futures by the CME Group.
“I do not see that the risks are so elevated, nor the outlook so pessimistic, as to justify the exceptionally shallow interest rate path now reflected in financial futures markets”, he said.
Earlier on Wednesday, the United Kingdom produced its first calculation of GDP growth for the first quarter of the year indicating an easing to 0.4% growth from a figure of 0.6% in the previous three months.
“They’ve reassured the market it’s going to be a slow and gradual pace and that they expect the economy to improve moderately”, said Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ US intermediary business.
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International Monetary Fund slashed United States’ growth projection by 0.2 percentage point to 2.4 per cent in 2016 and forecast 2.5 per cent expansion in 2017, while EU’s growth was also lowered by 0.2 percentage point to 1.5 per cent in 2016 and Japan’s outlook was revised down by 0.5 percentage point to 0.5 per cent.
