Federal Reserve Expected to Maintain Rates Unchanged in Upcoming FOMC Meeting
In the upcoming week, the Federal Open Market Committee (FOMC) is set to convene for its highly anticipated meeting. Market experts predict that the Federal Reserve will opt to keep interest rates steady. However, analysts at Rabobank hold a different perspective, foreseeing a resumption of the hiking cycle by the US central bank starting in July.
FOMC Likely to Maintain Current Interest Rates
According to Rabobank analysts, the FOMC is expected to maintain the target range for the federal funds rate during this month's meeting. The prevailing sentiment is influenced by Federal Reserve Chair Jerome Powell's inclination toward a pause in June, which further strengthens this prediction.
Revised Outlook Prompted by Economic Reacceleration
Initially, market expectations were aligned with a prolonged hold on interest rates for the remainder of the year following the May meeting. However, the recent reacceleration of the economy and the limited impact of the banking turmoil on credit conditions have prompted a shift in projections. Consequently, Rabobank analysts now anticipate the Federal Reserve to resume the hiking cycle in July. The primary motivation behind this decision is to rein in inflationary pressures.
Anticipated Hiking Cycle and Inflation Management
Rabobank analysts project a single rate hike of 25 basis points, which is expected to be followed by a more extended pause, likely lasting until the end of the year. The objective of these rate hikes is to effectively control inflation, given the current economic circumstances. The analysts caution that their revised baseline forecast holds an upside risk. If the anticipated recession, which is deemed inevitable to curtail this period of elevated inflation, persists for an extended duration, it may necessitate a higher number of rate hikes to achieve the desired outcome.
Conclusion
As the FOMC gears up for its forthcoming meeting, speculation is rife regarding the future trajectory of interest rates. While general consensus points towards maintaining the current target range for the federal funds rate, Rabobank analysts diverge from this view. They foresee the Federal Reserve resuming the hiking cycle in July as the economy reaccelerates and the impact of banking turmoil on credit conditions remains limited. The primary objective of this strategy is to tackle inflationary pressures. However, it is essential to acknowledge the inherent risks associated with the economic landscape and the potential need for additional rate hikes if the anticipated recession fails to materialize promptly.