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Here comes the Fed statement …
Andrew Medichini/AP
Federal Reserve Chair Janet Yellen arrives on the last day of a G7 of Finance ministers, in Bari, southern Italy, Saturday, May 13, 2017.
The Federal Reserve is set to announce its latest decision on interest rates at 2 p.m. ET.
Most bets are on an increase in the target range of the federal funds rate to 1%-1.25%, a 25 basis-point hike. This hike should eventually lift borrowing costs on credit cards, loans, and other types of debt. It would signal that the Fed believes the economy is healthy enough to withstand tighter financial conditions.
Ahead of the statement, traders’ implied probabilities for a rate hike were at 93.5%, according to Bloomberg. That fell from about 98% on Tuesday after weak economic data earlier on Wednesday raised speculation that this could be the last rate hike of the year.
The Department of Labor’s monthly consumer price index (CPI) was weaker than expected, and showed that inflation continues to move away from the Fed’s 2% target. The Fed had maintained that soft inflation was transitory, and so investors will be watching for whether, and how, it addresses this continued slowdown in the statement.
Federal Reserve Chair Janet Yellen will hold a press conference starting at 2:30 p.m. ET where she likely will be asked about why the Fed is raising rates even though inflation is soft.
The Fed is rosier about the other part of its mandate, the labor market, amid a 4.3% unemployment rate. However, the lack of strong wage inflation is also another sign for the doves that the Fed should not be eager to raise rates.
“The US economy has not been firing on all cylinders but the Fed risks losing credibility if it backed off from a rate hike when it’s been so heavily intonated,” said Jasper Lawler, a senior market analyst at London Capital Group, in a note on Wednesday.
Read more stories on Business Insider, Malaysian edition of the world’s fastest-growing business and technology news website.
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