September More Likely than June: Economists
The most recent meeting of the Federal Open Market Committee (FOMC) indicates that the Federal Reserve will likely continue with its policy of
maintaining rates near 0%. Many of those present at the meeting felt that economic data was not strong enough to support a rate hike, according to the meeting’s minutes.
The Federal Reserve’s release said, “The Committee agreed to maintain the target range for the federal funds rate at 0% to 0.25% and to reaffirm…the Committee’s decision about how long to maintain the current target range for the federal funds rate would depend on its assessment of actual and expected progress towards its objectives of maximum employment and 2% inflation.”
“Inflation is easier to fight than deflation,” Chief Market Strategist for Wunderlich Art Hogan told OAG360®. “I think that’s why they’re holding off before they raise the rates. They would rather be a little late in raising rates than raise them too soon and getting it wrong.”
“September is probably the earliest we can expect to see the Fed raise rates,” Hogan went on to say. “The Fed desperately wants to raise rates, but the first quarter numbers pushed the decision back.”
Chief Economist for Credit Agricole Michael Carey concurred with Hogan as well, saying that the Fed would wait until September before raising rates. The rate hike will not come until the Fed sees “continued improvement in labor market conditions and the FOMC [is] reasonably confident that inflation will gradually return to the Fed’s 2% objective over the medium term.”
“Could the Fed raise rates before September? Sure,” says Hogan, “but it would take some block-buster jobs numbers.” The Fed would have to see job growth in the 300,000 to 400,000 per month range before lifting the rates sooner than September, says Hogan.
Charles Goodson, a member of the Federal Reserve Bank Atlanta Energy Advisory Council, said that, in his opinion, the Fed would need to see consistency in inflation and jobs growth before it raised rates. “They want to see clear indicators of improvements in their rear-view mirrors before they decide to raise rates,” he said.
Meantime, the markets are waiting to hear what Fed Chairman Janet Yellen has to say at a Chamber of Commerce luncheon on May 22.
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