Fed likely to hold interest rates steady
Print Edition
US 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.
The Fed raised its policy interest rate last December for the first time in a decade when market volatility finally subsided.
Similarly early this year markets wobbled on worries about a slowdown in global economic growth and weak US 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 US economic data. Concrete signs of higher inflation and growth may be needed before the Federal Open Market Committee, the Fed’s policy committee, continues with the projected gradual path toward more normal levels of interest rates.
Though the US 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 the meeting tomorrow and Wednesday of the 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 predicts two rate hikes this year.
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