Fed likely to keep rates steady; investors bet on June hike

Washington (May 1)  The U.S. Federal Reserve is set to hold interest rates steady this week but will likely further encourage expectations that it will lift borrowing costs in June on the back of rising inflation and low unemployment.

Investors have all but priced out the chance of a rate hike at the end of the Fed’s two-day policy meeting on Wednesday, particularly given its adherence in recent years to only raising rates at meetings that are followed by press conferences.

The central bank is due to announce its decision at 2 p.m. EDT (1800 GMT) on Wednesday. Fed Chairman Jerome Powell is not scheduled to hold a press conference.

“Fed speakers have done little to push back against this expectation ... we expect no fireworks,” JPMorgan economist Michael Feroli said in a note to clients.

The Fed raised its benchmark overnight lending rate at its March 20-21 meeting by a quarter percentage point to a target range of between 1.50 percent and 1.75 percent.

It currently forecasts another two rate rises this year, although an increasing number of policymakers see three as possible. The Fed’s next policy meeting after this week is scheduled for June 12-13. Investors overwhelmingly see a rate hike then.

The pace of rate increases has picked up since the central bank began its tightening cycle in December 2015. It raised rates once in 2016, but lifted borrowing costs three times last year amid a strengthening economy.

Unemployment is at a 17-year low of 4.1 percent and the Trump administration’s tax cuts and fiscal stimulus are expected to further juice the economy.

Reuters