The Federal Open Market Committee’s June meeting is just around the corner, and while most experts think the Fed will pause its rate increases, others are wary.
Most analysts expect the Central Bank not to introduce another rate hike at the meeting, scheduled for June 13-14, according to a poll of economists from Reuters. More than 90% of those polled, 78 of 86 total, don’t think another hike is on the horizon. These analysts think the Fed will pause to evaluate the impact of the 500 bps increases they’ve already instituted.
“[Fed Chairman Jerome Powell] expressed his bias in favor of remaining on hold in June … he’s going to stick with that as it gives them an additional month of data to look at, although I seriously doubt whether that will give them any new insights,” Philip Marey, senior U.S. strategist at Rabobank, told Reuters.
Jobless claims jumped more than expected last week, giving “no hike” proponents more fuel. The chances of no increase rose to 73.6% from about 65% in the wake of that data.
“The absence of any such preparation [for a raise] is the signal and gives us additional confidence that the Fed is not going to hike in June absent a very big surprise in the remaining data, though we should expect a hawkish pause,” Evercore ISI strategists wrote in a note.
If officials choose not to raise rates, it will be the first meeting without one in more than a year.
But others are still betting on a hawkish approach to inflation, which remains above the Fed’s 2% target.
Eight respondents expect a hike in June, while one-third predict at least one more at some unspecified point this year.
“They still think they need to do more, and also I would suspect they will continue to discourage expectations of policy easing,” Vassili Serebriakov, an FX strategist at UBS in New York, said.
“There is not a substantial economic difference between raising policy rates in June or doing so in July. But communicating why rates should not rise in June, despite data to the contrary will be challenging,” Andrew Hollenhorst, chief U.S. economist at Citi, responded. He is betting on a 25 bps increase in both June and July, an uncommon position.
Recent economic data shows the economy rallying despite the Fed’s best efforts. The Consumer Price Index will be released on the first day of the FOMC meeting. It is likely to show headline inflation up at an annual rate of 4.1% in May.
“Overall, the May jobs report keeps a Fed pause in play at next week’s June FOMC meeting. But hawkish Fed commentary and excessive data dependence mean that the door remains open to a possible rate hike,” ” EY Senior Economist Lydia Boussour noted.
“If the upcoming CPI report proves hotter than expected, it could push the small majority of policymakers in favor of a ‘hawkish pause’ to join those favoring another rate hike.”
Mortgage rates follow Treasury data, not interest rates. But their impact on overall market forces does influence mortgages, so the Fed’s moves are watched closely by industry experts.
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