There was no shock decision today as the Federal Reserve made its interest rate announcement.
During its March release, the Fed announced that it would maintain its benchmark interest rate in the range of 0.25-0.5 per cent. It had moved rates to this level back in December – the first increase for close to a decade – in what was seen as a sign of confidence in a resurgent US economy.
However, a difficult start to the year appears to have put plans for four further hikes during 2016 on hold with the Fed now predicting two rate hikes later in the year.
While investors had initially expected rates to rise this month, the path of the financial markets has taken things in a different path. With the US dollar remaining strong, weight has been placed on the US export market while the cost of imports has been held down. In addition, oil prices have reached their lowest point for around a decade which has placed further restraints on inflation.
Speaking ahead of the announcement, Kevin Logan, a chief economist for HSBC, told the Washington Post that the Fed was likely to “extend its current period of ‘watchful waiting’.”
Meanwhile, Eric Stein, co-director of global income at Eaton Vance, spoke to USA Today, telling the publication that rates were not going to go up this month but that several rate hikes are still likely later this year. He believes that the factors that may have scared the Federal Reserve earlier this year – including fears about recession, volatility within the credit markets and market turbulence – have calmed: perhaps giving more confidence to the Fed to continue with plans for a hiking cycle.
Among the clues that a future rate hike may still be coming include the fact that Wall Street had removed its predictions of rate hikes earlier in the year, but it is now predicting one-two during 2016.