Most Fed officials seem to be sticking to their view and are supporting a rate hike this year. The big question is when, and there should be some good clues coming from the Federal Reserve’s policy meeting taking place on Tuesday and Wednesday this week.
With the important macroeconomic objectives of maximum employment and stable prices, the strong employment and consumer spending data since the beginning of June will probably not be enough to bring about a rates hike at this week’s meeting.
That leaves the remaining four FOMC meetings in July, September, October and December for the anticipated rate hike to be announced.
The last opinion poll on a rates hike done among the 17 members of the Fed at the last meeting in March revealed that 15 out of the 17 members were bullish concerning a rates hike this year.
Patience among Fed members seems to be wearing thin with regards to a rate increase, with no change expected from this meeting. Added to this, forecasting which of the next four meetings will see an end to their patience is not that easy. A new poll of the 17 will be done this week and Kevin Logan, chief U.S. economist at HSBC, said that he expects continued overwhelming support for a rates hike.
The content of the address by Fed Reserve Chairwoman, Janet Yellen, after the meeting, is expected to provide information that economists can use to try and predict the date of a rates hike. Many economists however believe that the release of updated economic forecasts by the Fed, including what is known as the “dot plot”, will provide a better idea of where and when interest rates will move.
The 17 dots represent the rate predictions of the five Fed Governors and the twelve District Bank Presidents and are used to construct the “dot plot”. Chief economist at MFR Inc., Josh Shapiro, said he plans to ignore all the talk and to rather focus on the dots. He said, “The dots, there it is in black and white. That represents information.”
Another fan of the dots, Ellen Zentner, chief U.S. economist at Morgan Stanley said, “The so-called dot plot is extremely useful in providing short-term communication regarding the timing of liftoff”. Her expectation is that the dot plot to be released after this week’s meeting will indicate that the expectation of the rates hike “starts later and shifts lower” than was the case with the chart released in March.
The report of the Chairwomen after the meeting is important, but the dot plot will probably give a far better idea of which of the next 4 FOMC meetings will be ‘THE’ rates hike meeting.