On Wednesday, the U.S. Federal Reserve published the meeting minutes from the January 31 – February 1 monetary policy meeting. The minutes showed that policymakers believed that it was appropriate to hike the short-term interest rates “fairly soon.”
In an apparent reference to the president’s proposed tax reforms, the minutes showed that the tax reforms alongside increased spending could see interest rates rise much further to control inflation. The meeting minutes, however, did give any exact timing on when the next rate hike will come.
The markets, following the FOMC meeting minutes publication, saw the probability for a March rate hike rise to 27%, which is still low. This is despite the testimony from the Fed Chair Janet Yellen a week ago, where she reiterated the Fed’s commitment for three rate hikes this year. The markets are however not quite sold on that yet.
“We still believe in [a rate increase] three times, so we’re trying to stick with that assumption, but I think the feeling is getting more and more [that] there may be only two,” said Arthur Kwong, head of Asia Pacific equities at BNP Paribas Investment Partners, echoing the broader market sentiment.
U.S. consumer prices rose 2.5% as of January, while the core CPI increased 2.3%. Policy makers will, however, get to see PCE data, the Fed’s preferred gauge of inflation next week on Tuesday which will provide more insight into the timing of the interest rate hike.
Read more: https://www.orbex.com/blog/2017/02/probability-of-a-march-rate-hike-is-27/