Fed may signal slower rate hikes
But central bank likely to stay mum on outlook for July
This week’s Federal Reserve meeting will likely provide little hint about the now remote possibility of a midsummer interest rate hike, economists say. But it could deliver a more sobering message: Policymakers expect slower growth and lower rates the next few years.
“Faced with continued sluggish growth, little sign of a pickup in productivity” and persistently tepid wage growth, “policymakers are likely to reassess” the longerterm path of rate increases, Morgan Stanley wrote in a report. The research firm expects Fed officials to lower their forecast for economic growth from 2016 through 2018, and longer-term to just under 2% a year. Their estimate of the federal funds rate at the end of 2018 will fall to 2.4% from 3%, and for the longer run, to 3% from 3.3%, the firm predicts.
Many investors, however, are likely to focus on the short term this week.
The government’s recent report of paltry average job gains of 80,000 the past two months squashed any chance of a rate hike at the twoday meeting that ends Wednesday. In a speech, Fed Chair Janet Yellen largely confirmed that a June move was no longer on the table, calling the jobs data “concerning.”
But she added that she didn’t place too much stock in a single report and portrayed a generally improving labor market that added an average 230,000 jobs a month last year and boasts an un- employment rate below 5%.
As a result, some economists say a July rate hike is still a possibility, if a remote one. Fed fund futures indicate the odds of an increase are 2% next week and 21% in July. Fed officials, analysts say, likely want to see two solid jobs reports before lifting rates to ensure the recent slump didn’t mark a fundamental slowdown.
Still, data revealing strong job gains in June and big upward revisions in May could prod the Fed to act at a late-July meeting if the United Kingdom votes on June 23 to remain in the European Union, easing market jitters, says economist Richard Moody of Regions Financial. But don’t expect much of a signal Wednesday.