Wednesday preview: Federal Reserve announces interest rate decision

The Federal Reserve is widely expected to keep interest rates unchanged when the central bank announces its latest policy decision on Wednesday.

Many analysts are pricing in no chance of a rate hike over the next few meetings, and less than one full hike by the end of the year amid worries about the slowdown in the global economy.

“Back in October, the market was pricing in a probability of three hikes in 2016, and now we are pricing in just one hike by end-2017,” said Society Generale.

Bank of America Merrill Lynch expects the Fed will raise interest rates this summer, potentially in June if the global market selloff ahead of the Brexit vote is limited, otherwise in July.

The bank said global economic and financial conditions “have generally stabilised if not improved, and we expect further progress toward the Fed’s dual mandate objectives over the coming months”.

“As a result, we think the Fed will likely hike rates again this summer,” it said.

This month’s policy announcement from the Federal Open Market Committee won’t be accompanied by a press conference or forecast update so the focus will be on the statement for any clues on the timing of the next rate hike.

Chair Janet Yellen’s statement is expected to remain dovish on interest rates. Last month she said the Fed would “proceed cautiously in adjusting policy” in remarks to the Economic Club of New York.

“The inflation outlook has also become somewhat more uncertain since the turn of the year, in part for reasons related to risks to the outlook for economic growth," she said.

"To the extent that recent financial market turbulence signals an increased chance of a further slowing of growth abroad, oil prices could resume falling, and the dollar could start rising again."

The last time Fed raised benchmark rates was in December.

Wednesday 27 April

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