Will they or won’t they? That’s the question voiced in all markets regarding a Fed rate hike this week. U.S. Federal Reserve policymakers meet on April 26-27 and most expect that interest rates will be kept steady; others see a slim possibility of a surprise hike.
The U.S. economy has been generating jobs and consumer prices have risen, offering some support for a Fed interest rate rise. However, other factors continue to plague both the local and international economies and Fed Chair Janet Yellen may choose to remain cautious about further rate hikes and not make any moves before the second half of the year.
Weakness in retail sales and international trade, especially concern about China's economy, are seen as the key reasons for the Fed to hold off once again from introducing a hike. Additionally, the steep stock market drop earlier this year and weak first-quarter U.S. economic data should keep rates as they are for the moment.The FOMC, the Fed's policy committee, may need more tangible evidence of higher inflation and growth before it makes any move towards normal levels of interest rates.
Yellen is expected at the meeting to detail the Fed’s economic outlook in such a way as to leave open all possibilities of a future rate increase.
No Hike Factored In By Markets
Markets have been certain that a rate increase this week would not happen, with 20% believing that it could take place at the next meeting on June 14-15.
Aneta Markowska, chief U.S. economist at Societe Generale in New York doesn’t believe that "…..they can pull off a June hike without triggering another round of volatility, and they don't want that because the selloff in January and February left a deep scar."