Fed likely to stress no rate hike coming
WASHINGTON — The Federal Reserve this week will likely reinforce a theme that has cheered consumers and investors since the start of the year: No interest rates hikes are likely anytime soon.
The prospect of continued low rates is keeping borrowing costs low for households and companies. It is helping drive record highs in the stock market. It is supplying fuel for a U.S. economy that’s growing steadily but fairly modestly and until recently was seen as facing the risk of a recession. And with inflation remaining unusually mild, the Fed is seen as able to stay on the sidelines through year’s end and perhaps beyond.
The Fed will likely express that belief in a statement when its latest policy meeting ends Wednesday and in a news conference that Chairman Jerome Powell will hold afterward.
“The Fed will recognize the brighter economic outlook, but there will be no change at this meeting,” said David Jones, an economist and author of books about the Fed.
The generally brighter view of the economy and the stock market represents a sharp rebound from the final months of 2018, when concerns about a possible global recession and fear of further Fed rate increases had darkened the economic picture. Stock prices tumbled in the final quarter of the year, especially after the Fed in December not only raised rates for the fourth time in 2018 but suggested that it was likely to keep tightening credit this year.
Yet beginning in January, the Fed engineered an abrupt reversal, suggesting that it was finished raising rates for now and might even act this year to support rather than restrain the economy. In characterizing its stance, the Fed’s new watchword became “patient.” And investors have responded by delivering a major stock market rally.
The market gains have also been fed by improved growth prospects in China and some other major economies and by the view that a trade war between the world’s two biggest economies, the United States and China, is moving closer to a resolution.
On Friday, the government reported that the U.S. economy grew at a surprisingly strong 3.2 percent annual rate in the January-March quarter. It was the best performance for a first quarter in four years.
If economic prospects were to brighten further, could Fed officials rethink their plans to suspend further rate hikes and perhaps resume tightening credit?
Possibly. But investors don’t seem to think so. According to data tracked by the CME Group, investors foresee zero probability that the Fed will raise rates anytime this year.
And in fact, their bets indicate a roughly 64 percent likelihood that the Fed will cut rates before year’s end.
One factor in that dovish view is that the economy might not be quite as robust as the latest economic figures suggest.
