“Fed rate hike” – three magical words that have kept investors optimistic about the U.S. economy amid global headwinds such as growth issues in China, crashing commodity prices and volatile oil prices.
While most of the economies have been loosening their monetary policies with Europe and Japan heading towards negative interest rates, the Federal Reserve’s rate hike in Dec 2015 marked the end of its accommodative monetary policy of nearly eight years, indicating strength in the domestic economy.
However, the massive sell-off in the early part of this year dashed the hopes of gradual rate hikes throughout 2016 with several market experts and analysts predicting recession in the U.S. market.
A Strong Comeback
Though the Fed left the market empty-handed in its January meeting, the volatility that hit markets from mid-2015 through the early part of February this year has now passed. Also, the U.S. stock market has shown some recovery in the past one month amid heightened uncertainty. The S&P 500 index gained over 8% in the past month.
Moreover, the U.S. economy has regained momentum after a sluggish fourth quarter, given the slew of encouraging data pertaining to retail sales, consumer spending, producer prices, factory production and inflation. The recent strong jobs data further eased fears of a recession in the U.S. and infused signs of confidence into the economy.
While tepid wage growth remains a matter of concern, a solid hiring number is strong enough to support the Fed’s gradual interest rates hike this year.
Is a Rate Hike in the Cards?
While the recovery of the U.S economy has set the stage for the Fed to declare another rate hike, the chances of that happening appear to be bleak.
Per the latest Wall Street Journal poll, just 3% expect the Fed to lift rates at the March 15-16 meeting, while about 76% of the economists believe that the Fed will next raise rates at its June 14-15 policy meeting. Around 6% predict that the Fed will keep rates steady at the March 15-16 meeting and then raise them at its April 26-27 meeting. Moreover, 15% expect rates to remain unchanged until June and 6% are of opinion that the Fed will wait until its September meeting to make its next move.
