USA interest rate rise in June '100% certain' after Fed delays

04 May, 2018, 14:20 | Author: Shannon Aguilar
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3-4 rate hikes Fed officials in the March meeting had indicated that they expected a total of 3-4 hikes in 2018.

Leslie Preston, Senior Economist, TD Bank Group, speaks to Sara D'Elia about noteworthy changes in the Fed's take on inflation and the expected pace of rate hikes going forward.

The euro area unemployment rate remained unchanged in March, data published by Eurostat showed Wednesday. But there is an even split.

Markets have already priced in two more rate hikes for the year - one in June and the other one in September. "I think (today's move) is only temporary. Maybe it's slightly dovish if you really have to tease something out of it".

Consumer prices rose 2% in March from a year earlier, according to the Fed's preferred gauge, after almost a year in which inflation softened unexpectedly. Just a few 2 years ago the yearly rate was almost zero. The dollar, however, is again in positive territory for year after reaching highest level in three and a half months.

"The link-up in the yield differential and the dollar theme means the rally may have further room to run, especially against the euro and sterling as there is a big structural short dollar position in the market", said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers. "That's one reason why, despite very good earnings, you're not getting the market moving higher".

Stocks, which initially gained after the Fed statement, reversed course as potential U.S. restrictions on Chinese telecommunications companies reinforced investor concerns about trade relations between the United States and China.

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After the Commerce Department's index of household spending - the Fed's preferred inflation gauge - was reported at 2% in March, Wednesday's statement said that inflation had "moved close" to the target. Analysts interpreted its comments on inflation as a signal that it may allow prices rises beyond its target, a stance that would limit the need for it to embark on a more aggressive path of tightening.

So should the market expect another hike in June?

"The statement carried only modest changes in wording, but they were meaningful nonetheless, highlighting that the Fed is optimistic on the outlook and intent on continuing to raise rates at a gradual pace", said Westpac analyst Elliot Clarke.

Many people, including Wall, still see the dollar failing to extend its recent surge, given the United States needs a weaker currency to fix its deficit and the Fed's awareness of the knock-on effects on developing countries of a rampant dollar. But the recent upturn in inflation, which has occurred largely before any of the fiscal stimulus ripples through the economy, could add a new dimension to these discussions.

The statement said the economy has been growing at a moderate rate.

Talks between Steven Mnuchin, U.S. treasury secretary and Liu He, Chinese vice premier are due to kick off later on Thursday. With the drop, the index fell to its lowest closing level in six months. By 13:00 pm local Jakarta time the rupiah had weakened 0.19 percent to IDR 13,975 per U.S. dollar (Bloomberg Dollar Index).


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