With the economy slipping on a banana peel in March, inflation creeping higher and financial markets running from one extreme to the other, the main goal of the Federal Open Market Committee (FOMC) tomorrow (May 3) is not to add to the confusion, economists said.
CBS MarketWatch reported that the scenario likely means the FOMC will stick to the script with a gradual rate hike and few changes to the post-meeting statement.
“I don’t see anything that is likely to be different,” said Swiss Re chief economist Kurt Karl.
A quarter-percentage point rate hike would bring the target federal funds rate up to 3%. It would be the eighth consecutive quarter-point increase in the fed funds rate since the Fed starting raising rates from a 40-year low of 1% last June. The benchmark prime rate is likely to follow suit, raising the lending rate to 6%.
To change things now “would just raise more uncertainty and you sort of wonder what the purpose would be,” said Jim Glassman, economist at JPMorgan/Chase.
One reason for the Fed to stay the course is that it is being pulled in different directions by higher energy prices, said Stephen Gallagher, chief U.S. economist at SG Corporate & Investment Banking.
The first-quarter GDP data, where growth rose at a 3.1% annual rate, its lowest rate in two years, shows higher energy costs are dampening business spending and pushing up inflation at the same time, he said.
“For now, given the uncertainty, the Fed is likely to continue its gradual rate hike path,” he said.
Economists said Fed officials have expressed satisfaction with the steady rate hike pace.
“Fed officials are happy with the gradual policy moves for now, there is no real urgency in parting from current trajectory,” said Glassman.