FED EXPECTED TO HOLD INTEREST RATES
Elevated inflation data likely to lead to more hawkish FOMC meeting
THE US Federal Reserve (Fed) is highly likely to keep interest rates unchanged later this week, as policymakers contend with a recent uptick in inflation that has sharply cut the chance of a summer start to interest rate cuts.
The Fed’s decision to hike interest rates and then hold them at a 23-year high has helped to significantly lower elevated inflation, although it remains stuck firmly above the US central bank’s long-term target of two per cent.
Since the start of this year, the Fed’s favoured inflation measure has actually accelerated, hitting an annual rate of 2.7 per cent in March, while economic growth has slowed, and the labour market has remained robust.
The current environment, analysts say, is likely to lead the rate-setting Federal Open Market
Committee (FOMC) to hold rates at their current level of between 5.25 and 5.5 per cent for longer than previously thought.
“Another round of elevated inflation data is likely to lead to a more hawkish-leaning message at the May FOMC meeting,” economists at Deutsche Bank wrote in a recent note to clients.
The markets are almost certain that the Fed will leave its key lending rate unchanged this week: futures traders assigned a probability of less than three per cent on Friday that it would announce
a rate cut after its twoday meeting concludes on Wednesday, according to CME Group data.
In light of the recent data, traders do not see a greater-than50 per cent chance of an interest rate cut until the Fed’s decision mid-September, according to CME Group.
A September cut could prove awkward for the Fed as the independent US central bank, since it would come shortly before the November presidential election.