The US Federal Reserve is expected to leave interest rates unchanged today for the first time since the US central bank kicked off a historically aggressive round of monetary policy tightening in March last year.
Many analysts and investors are calling it ‘a skip’ as they expect the Fed will skip a hike this time.
Policymakers at the end of their two-day meeting may well signal more rate increases are still to come once they take time to assess how the economy is evolving, whether the financial system remains stable, and if inflation is continuing to fall.
Aidan Donnelly, Head of Equities with Davy, expects a pause in hikes, “but in the wording that comes from the Fed they’ll make it clear that this is a short term thing, and that a decision about further interest rate increases haven’t been put away”.
“We have seen continued higher levels of inflation than the Fed would want to see, and we’ve also seen very strong labour markets, which makes it very difficult to see inflation coming down very quickly,” he said.
“Both of those things are probably in the back of the minds of members of the Fed. They won’t want to say that they are done at this stage. They’ll want to leave the door open to a potential increase in July if they think it’s necessary.”
Fed policymakers are expected to show that one or perhaps two more quarter-percentage-point hikes will still be needed by the end of the year.
The Fed is scheduled to release its policy statement and new quarterly economic projections at around 7pm Irish time. Fed Chair Jerome Powell will hold a press conference half an hour later.
The European Central Bank is set to announce further interest rate increases tomorrow.
A poll of economists by Reuters found a clear majority expect the ECB to hike its key interest rates by 25 basis points tomorrow and again in July.
Last week, economic data showed that Europe slipped into a technical recession. Mr Donnelly said the ECB “will be watching that very closely because they don’t want to see the economy driven into recession just to fight off inflation”.