Fed expected to pause on series of rate hikes

0

WASHINGTON, D.C.: The Federal Reserve was expected to pause on its path toward launching a series a rate hikes as a two-day monetary policy meeting opened in Washington on Tuesday (Wednesday in Manila).

With the expected first Fed interest rate rise in nearly nine years already stirring turmoil in global markets, the Federal Open Market Committee will want to assess the US economy’s strength after a winter slowdown, and also not add to market stress with another possible Greek debt crisis looming.

Fed Chair Janet Yellen had put the US central bank on course for a possible hike in the federal funds rate, locked at zero since 2008, as early as June.

A signal for that had been anticipated at this week’s Federal Open Market Committee meeting.


But with the economy not yet clear of the winter slump, and Greece possibly headed for a debt default and tumultuous exit from the euro area, the FOMC can afford to remain in a holding pattern, analysts said.

One of the Fed’s key economic guideposts, inflation, remains far below target. And March’s low hiring numbers raised doubts about the other crucial FOMC benchmark, the strength of the job market.

Other indicators have been disappointing as well: industrial production is down, in part due to the strong dollar; wage gains remain weak; and consumer confidence plunged in April.

In addition, analysts expect the Commerce Department to report a poor number — sub-1 percent by some estimates — for first-quarter economic growth early Wednesday, compared with the 2.2 percent pace of the 2014 fourth quarter.

“Given that the Fed will be monitoring any and all measures of inflation to ensure complete confidence in their outlook, we expect that they will wait for a few more months of data before making any major decisions,” said Kim Fraser Chase of BBVA.

“Therefore, we continue to expect the first rate hike in September, once they have received both inflation and employment data through August, with a very gradual pace of rate increases thereafter.”

Staying patient
A June hike has been on the radar since March when the FOMC stopped saying it would remain patient before embarking on what it forecasts will be a series of slow rate increases back to a “normal” post-crisis monetary policy.

The removal of the “patience” pledge from the FOMC policy statement was an indicator that the first rate hike could come as early as June, Yellen said at the time.

But some of the decision hinges on just how anxious the FOMC is to get the very first increase out of the way, so jittery global markets can focus on the medium-term trend rather than the icebreaker.

“Rates can’t stay at zero forever,” Fed Vice Chair Stanley Fischer said two weeks ago.

AFP

Share.
.
Loading...

Please follow our commenting guidelines.

Comments are closed.