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Fed will raise

FOREX_fed-will-rise-interest-rates1306_FXPIG

The Federal Reserve will raise its short-term target rate while trying to keep markets calm by signaling future interest-rate hikes will come at an “unhurried” pace.

The Fed, which ends two days of talks Wednesday , will make few wrinkles because “it is in a good spot,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “The data since March is pretty much in line with the outlook and the rate path clearly remains a gradual one,” she said in an interview.

Most of the year-on-year growth in core services inflation since last fall owes to two categories, financial services and hospitals, she said.

On Tuesday, the Labor Department released consumer price inflation data for May that showed year-on-year headline inflation accelerated to a six-year high led by higher gasoline.

But analysts said the data would not change the trajectory of monetary policy as the year-on-year gains should top out in coming months.

Even though growth in the second quarter is looking strong, with some tracking estimates as high as 4.6%, the Fed will be cautious, concerned with the ongoing G-7 trade conflict, the recent bout of market stress over Italy, and disappointing growth in other advanced economies, said Krishna Guha, Fed watcher at Evercore ISI.

The market has already priced in a decision by the Fed to raise the target range of the federal funds rate by 25 basis points to a range of 1.75% to 2%. This will be the second rate hike this year and the seventh move since the start of the tightening cycle.

The interest-rate decision will come at 2 p.m.. The Fed will also released updated economic forecasts for the economy and interest-rate policy, and Chairman Jerome Powell will hold a press conference.

Analysts say any changes to the Fed’s forecast and policy statement may get in the way of its plans for a calm message.

Markets will be focusing on the central bankers updated “dot-plot” projections for interest rates. If only one official decides to raise their forecast for rates, that would send a signal of four more moves this year, complicating the unhurried message.

At the moment, traders see a 38% chance of four rate hikes this year. That is down from over 50% before the bond market selloff in view of political turmoil in Italy.

The yield on the 10-year Treasury yield TMUBMUSD10Y, -0.09%   has fallen to 2.96% after topping 3% last month.

Another hurdle is that Fed officials, in the last few weeks, have expressed an interest in updating the policy statement.

Source: marketwatch.com

The Federal Reserve will raise its short-term target rate while trying to keep markets calm by signaling future interest-rate hikes will come at an “unhurried” pace.

The Fed, which ends two days of talks Wednesday , will make few wrinkles because “it is in a good spot,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “The data since March is pretty much in line with the outlook and the rate path clearly remains a gradual one,” she said in an interview.

Most of the year-on-year growth in core services inflation since last fall owes to two categories, financial services and hospitals, she said.

On Tuesday, the Labor Department released consumer price inflation data for May that showed year-on-year headline inflation accelerated to a six-year high led by higher gasoline.

But analysts said the data would not change the trajectory of monetary policy as the year-on-year gains should top out in coming months.

Even though growth in the second quarter is looking strong, with some tracking estimates as high as 4.6%, the Fed will be cautious, concerned with the ongoing G-7 trade conflict, the recent bout of market stress over Italy, and disappointing growth in other advanced economies, said Krishna Guha, Fed watcher at Evercore ISI.

The market has already priced in a decision by the Fed to raise the target range of the federal funds rate by 25 basis points to a range of 1.75% to 2%. This will be the second rate hike this year and the seventh move since the start of the tightening cycle.

The interest-rate decision will come at 2 p.m.. The Fed will also released updated economic forecasts for the economy and interest-rate policy, and Chairman Jerome Powell will hold a press conference.

Analysts say any changes to the Fed’s forecast and policy statement may get in the way of its plans for a calm message.

Markets will be focusing on the central bankers updated “dot-plot” projections for interest rates. If only one official decides to raise their forecast for rates, that would send a signal of four more moves this year, complicating the unhurried message.

At the moment, traders see a 38% chance of four rate hikes this year. That is down from over 50% before the bond market selloff in view of political turmoil in Italy.

The yield on the 10-year Treasury yield TMUBMUSD10Y, -0.09%   has fallen to 2.96% after topping 3% last month.

Another hurdle is that Fed officials, in the last few weeks, have expressed an interest in updating the policy statement.

Source: marketwatch.com

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