Federal Reserve

Fed keeps Options Open, What to Expect From FOMC Meeting

The Federal Reserve is likely to hold interest rates unchanged at its policy meeting today after disappointing economic data over the last month, economists said, although some think it is a closer call than the market expects. The central bank will release a statement and new economic projections at 18:00 GMT followed after by a press conference from Fed Chair Janet Yellen.

The Federal Reserve raised its overnight interest rate to a range of %0.25-%0.50 in December, the first hike in nearly a decade, but has held rates steady during this year.  Alongside the policy statement, Fed officials will also provide a new set of forecasts for economic growth, unemployment, inflation and the path of interest rates.

Economists said they could not rule out a surprise rate hike at the FOMC meeting, particularly since Yellen said that “the case for an increase in the federal funds rate has strengthened in recent months.”

According to FedWatch tool, odds for a rate hike for September stands on 15% while December rate hike chances are 48%. In case the fed decides to hold interest rate unchanged, analysts will pay attention for signals of a rate hike in December.

While the majority of Fed watchers think the Fed will raise rates in December, some are calling for a broad rethink of the strategy for gradual rate hike.

The clearest preview of Wednesday’s likely decision came from Fed Governor Lael Brainard in a speech last week that warned against raising interest rates too soon. “Today’s new normal counsels prudence in the removal of policy accommodation,” she said in Chicago, adding that the case to raise rates is “less compelling.”

Brainard was not reflecting the views of all her colleagues on the FOMC, but her speech contained some of the reasons that could be cited for the Fed’s patience. And, as Fed Chair Janet Yellen has mentioned before, the risks of raising rates too quickly are higher than those of being patient.

The Fed’s meeting also comes ahead of an election that’s brought the future of the Fed, and of monetary policy, into focus.  Last week, Republican presidential nominee Donald Trump said Yellen is keeping rates “artificially low to get Obama retired,” suggesting that there could be serious consequences afterwards.

The real impact of higher rates would not be on the economy, a hike of  25 basis-point hike would be a minor change over US and global economy. However, a rate hike can formulate a new monetary policy for central banks.

The Federal Open Markets Committee, is expected to leave its benchmark interest rate unchanged. However, after a almost a decade of near-zero interest rates, it might be the first sign of a new gradual tightening policy.

 

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Tom Chen

Tom Chen is a financial analyst as well as an active trader. Tom began trading currencies and commodities in 2005 which during this time developed and refined his approach. Tom Holds BA in Economics and a Journalism diploma from the 'London School of Journalism'.