The Federal Reserve’s Interest Rate Decision: What To Expect

The US Federal Reserve is widely expected to raise its benchmark interest rate at the conclusion of its two-day policy meeting later today. The expected hike is due to a tightening labor market and is expected to provide more detail on the central banks plans to shrink its substantial balance sheet.

Market participants have been mostly pricing in the rate hike which is expected to rise to a target range of 1.0% to 1.25% and will be mainly focused on comments from the press conference following the decision.

Fed policymakers; confidence in their outlook will be on show when they release their latest set of quarterly projections on growth, unemployment and inflation as well as their expected rate hike path.

Few economists expect major changes in the Feds overall forecasts this time around, although the extent of jitters on inflation moving away from the Fed 2% goal will likely be reflected on an individual level.

The Fed first embarked on fresh rate hikes after more than a decade back in December 2015. A quarter percentage point interest rate rise today would mark the second nudge upwards this year following a similar move in March.

Since then, the unemployment rate has fallen to a 16-year low of 4.3% and economic growth appears to have re accelerated following what has been a fairly lackluster first quarter.

That being said other indicators have been largely mixed. The Fed's preferred measure of underlying inflation has retreated to 1.5% from 1.8% earlier in 2017 and investors are growing increasingly doubtful policymakers will be able to stick to their anticipated pace of tightening of three interest rate rises this year and next.

There are also growing doubts on the size and scope of fiscal stimulus the Trump administration may inject into the US economy with campaign promises on tax reform, financial regulation rollbacks and infrastructure spending either still on the drawing board or facing hurdles in Congress.

Foreign exchange analysts have been turning against the US Dollar over recent months as the currency’s multi-year rally faded alongside the market’s realisation that President Donald Trump might not be able to deliver on his pre-election manifesto promises.

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