The Federal Reserve is set to lift the US benchmark interest rate from 1.5% to 1.75% today, following a meeting of its Federal Open Market Committee (FOMC).
According to CME Group there is a 95% chance the Fed will act, making it the sixth rate hike since late 2015, when it began shifting away from the near-zero rates it put in place during the 2007-2009 recession.
However the question on investors mind is what will the Fed do after?
Will the Fed policymakers maintain their yearly forecast for three interest rate hikes or bump it up to four.
With unemployment rate at 4.1% and continuing to fall, and the recent USD 1.5 trillion tax cut and USD 200 billion spending bill, along with an improved economic outlook, these are signs that the Fed may have to raise rates faster than it had planned to prevent the economy from overheating
Treasury yields rose Tuesday in anticipation of Fed rate hikes, with the 2-year yield reaching 2.35%, a more than nine-year high. Stocks traded higher, but there were undercurrents that suggested the market was also setting up for rate hikes, as real estate, telecom and utilities shares slumped and financial stocks rose.
Analysts will also be looking for clues from new Fed boss Jerome Powell on what his future plans will be for the central bank – and economists expect him to use his first press conference to expand on his view that “headwinds have become tailwinds”,
On another hand, there are plenty of reasons that the Fed would remain with a gradual hike path — fears of overheating and inflation have proved unfounded in the past, and this may continue to be the case. But the Fed is making the case that the path of rate hikes is more likely to rise than to fall. If three expected hikes become four at the next meeting, four could become five in the next projections, as reported by Bloomberg analysts.