Fed Expected to Keep Rates Steady

3 May, 2017

Fed Expected to Keep Rates Steady

Eurozone Q1 GDP initial readings (YoY and QoQ) will be released at 10:00 BST today, followed by the US Markit Services and Composite PMIs (Apr) at 14:45 BST, the US ISM non-manufacturing PMI (Apr) at 15:00 BST and the FOMC interest rate decision at 19:00 BST.

The crucial US ISM non-manufacturing PMI and manufacturing PMI have been above 50.0 for some time: Non-Manufacturing PMI since February 2010 and Manufacturing PMI since March 2016. Despite the recent moderate slowdown in manufacturing sector, the figures indicate that both the US service and manufacturing sectors saw continuous expansions.

The FOMC meeting will be held this evening at 19:00 BST. Per the Fed’s “gradual pace of rate hikes” markets are expecting the Fed to raise rates in June, instead of May, since the Fed just raised rates in March.

It is reported that Fed Chair Yellen is not due to hold a press conference today, therefore, there will not be any economic forecast provided. The only focus on the meeting will be whether there are any hints in the monetary policy statement about prospective shrinking of its balance sheet. During the past 10 years, the Fed has added its balance sheet over $4.5 trillion in bonds. The Fed needs to see a stable upswing in economic growth and inflation before unwinding its balance sheet.

However, the recent US economic data has been weak, such as the non-farm payroll in March, the Q1 GDP and auto sales etc. which makes a rate hike even more unlikely this month. Per the CME’s FedWatch tool the probability for a rate hike in May is just 4.8% whereas for June it is 67.4%.

Recently several Fed officials are forecasting two more rate hikes by the end of this year. Markets are expecting one in June and one in September. The recent soft US data has not yet reduced the probability of a rate hike in June. However, if the upcoming data keeps on underperforming, it will put more stress on the Fed to raise rates.

With a possibility of a shrinking balance sheet in today’s statement, USD is likely to rise. The dollar index will likely recover from the significant resistance level at 99.00. Conversely, if it is not mentioned in the statement, we can expect that the market will not have a big reaction to it, as it will be just in line with market expectations to keep rates on hold.

Source link  
Markets Look to OPEC

As OPEC began its 2-day meeting in Abu Dhabi on Monday, to align its members to adherence to output reductions, data from S P Platts revealed that Libya and Nigeria pushed OPEC crude...

BoE Lowers UK Growth Forecast

The Bank of England kept rates at their record low on Thursday, following their latest Monetary Policy Committee meeting. However, the BoE cut forecasts...

Beware Profit Takers

On Thursday US durable goods orders were released showing a 6.5% increase, which was the biggest gain in 3 years, resulting in USD clawing back some of its recent losses....

US Inflation Concerns Pressure USD

The Federal Reserve ended its 2-day meeting on Wednesday with, as expected, no change in US interest rates. The Fed commented that US inflation had declined...

No More Easy Money?

On Thursday, the US Commerce Department released GDP (Annualized QoQ) showing a 1.4% annual rate compared to the 1.2% posted in the previous month. This slight increase shows...

Markets listen to Yellen & Draghi

Central Banks are the key drivers of the markets this week as traders focused on comments made from two major central bankers ECB and Fed...

Markets look ahead to US data

Trading in USD was relatively flat on Friday ahead of economic indicators released next week in the US, which will provide...

Bear Territory for Oil?

Oil continued to trade lower on Thursday as traders look ready to test new lows for crude prices with worries persisting over a global glut...

USD Rises as Investor Concerns Abated

Investor concerns, that low US inflation could deter the Federal Reserve from raising interest rates further this year...