Fed Policy and Interest Rate Hike Under The Microscope At June Fed Meeting

chairLater today the Federal Reserve will conclude their 2 day policy meeting in Washington and investors will pay close attention to the language contained in the Fed’s statement along with Fed Chair Janet Yellen’s speech following the meeting, listening for signs about when the U.S. central bank is likely to begin hiking interest rates which has not occurred since 2006.

The Federal Reserve has kept the federal funds rate near zero since December 2008 during the depths of the global recession to help stimulate the economy and generate growth.

After  weaker than expected 2015 first quarter results that saw a contracting GDP growth rate of -0.07 percent in its second estimate, non-farm payroll growth under 200,000, and a surging U.S. dollar that hurt import prices, most economists don’t expect the Federal Reserve to rush for the exit door and hike rates at the conclusion today’s June meeting.

A majority of economists believe that 2nd quarter GDP growth will increase back into positive territory around 2 percent and an interest rate hike is more likely to occur sometime at the end of 2015.

Earlier this month, IMF Managing Director Christine Lagarde urged the Federal Reserve to wait until 2016 before raising interest rates which came as the IMF downgraded its U.S. growth estimates to 2.5 percent for the year.

Fed Chair Janet Yellen said earlier this year that an interest rate hike is likely to occur in 2015 as long as the economic data supports the move higher.

During a May speech, Yellen explained that the slowdown in the first quarter of 2015 was the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity.

Since then, the labor disputes have ended and job growth has been more robust during the past 2 months.

In May total nonfarm payroll employment rose by 280,000 compared with an average monthly gain of 251,000 over the prior 12 month while the unemployment rate in May came in at 5.5 percent.

In April the U.S. economy added 221,000 (revised) nonfarm payroll jobs.

On the heels of stronger employment figures over the last 2 months, combined with inflation that is beginning to rise again and improving retail sales, Fed Chair Yellen may just turn hawkish again and gradually begin to prepare the market for a small interest rate increase at the end of 2015, as long as the economic data in the approaching weeks supports the move higher.

-Johnathan Schweitzer

* Correction- my post yesterday briefly contained an error. One word (policies) was unintentionally left out- momentarily- for 30 minutes until the mistake was noticed and revised.






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