The US Federal Reserve is widely expected to raise its benchmark lending rate for a 10th and possibly final time on Wednesday, as it looks to bring down inflation while aiming to prevent fresh banking concerns from spreading.
The Fed has been on an aggressive campaign of interest-rate hikes since March last year, rapidly raising rates nine times in a row to help target high inflation, which remains stubbornly above its long-term target of two percent. Getting inflation back down to two percent has a long way to go and is likely to be bumpy,” Fed Chair Jerome Powell said during a press conference after the March rate decision.
With the Federal Open Market Committee (FOMC) widely expected to raise its base rate by a quarter-point on Wednesday, analysts and traders are instead keeping a keen eye out for any change to the Fed’s forward guidance on interest-rates.
Analysts, including Goldman Sachs chief US economist David Mericle, predicted that the US central bank would signal a pause in hikes from June onward, while Deutsche Bank economists saw the Fed maintaining a “tightening bias” due to “stubbornly elevated” inflation. This week saw the re-emergence of turbulence in the banking sector after a relatively calm period.
First Republic Bank collapsed over the weekend in what is the second-largest commercial bank failure in US history. Other regional banking stocks came under renewed pressure on Tuesday, with some seeing their share price decline by as much as 25 percent on renewed concerns about the impact of interest-rate hikes on their financial health.
Despite Tuesday’s turbulence, futures traders still see a greater-than 85 percent chance that the Fed will stick to its guns and hike rates by a quarter-point on Wednesday, bringing its benchmark lending rate to between 5 and 5.25 percent.
The data on the US economy remains mixed but is showing some signs of softening, with growth slowing to an annualized rate of 1.1 percent in the first quarter of the year. This, according to some analysts, will provide the Fed with the justification it needs to come out with more mild forward guidance on Wednesday’s decision.
Source: eNCA
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