Rate Hike Expected To Follow June FOMC Meeting

The Federal Reserve will head to Washington this week for a policy meeting that is highly expected to result in higher interest rates. However, the outlook beyond June is much less certain as central bankers deal with mixed economic data.

What are the odds of a rate hike?

The Federal Open Market Committee (FOMC) will begin its two-day meeting on Tuesday, with the official rate statement scheduled for the following afternoon at 2:00 p.m. ET to decide on whether a rate hike should happen this month. Traders are pricing in a nearly 100% likelihood of a rate hike on Wednesday, according to the 30-day Fed Fund futures prices, which have long been used to express the market’s views on monetary policy.[1]

The June rate hike decision will be accompanied by quarterly economic projections covering gross domestic product (GDP), inflation and unemployment. The Fed’s now infamous “dot-plot” summary of interest rate forecasts will also be released.

Could the rate hike count add up to 3 this year?

Back in March, policymakers decided on a rate hike for the first time in 2017, and maintained their outlook for three rate increases within the year. A June rate hike would leave just one more upward adjustment in the latter half of the year.

The U.S. central bank will meet again July 25-26 and then break until September 19-20.

Is the economy signaling a good time for a rate hike?

With the exception of the labour market, the U.S. economy appears to have hit a rough patch through the first half of the year. Gross domestic product (GDP) expanded a mere 1.2% annually in the first quarter, and that was after upward adjustments.

Weakness in the U.S. economy is being reflected in the performance of the dollar, which has had a woeful 2017. After soaring to nearly 13-year highs, post-election, the dollar index has dropped more than 5% this year.

The Fed has maintained a relatively downbeat view on economic growth – one that clashes with the views of U.S. President Donald Trump. Fed policymakers forecast annual growth of just 2.1% in each of the next two years before slowing to 1.9% in 2019.[2]

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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