Bernd Weidensteiner, Research Analyst at Commerzbank, suggests that at its meeting today, the Fed is unlikely to hike interest rates.
“Otherwise, it would have prepared markets already. After all, the Fed will certainly not want to jeopardize recent days’ signs of calming on financial markets with a surprise rate move.
Medium-term, further interest rate hikes must be expected though as progress towards the Fed’s targets is evident from the data. Job creation even accelerated again in February. And the Fed is also likely to have been pleased by the rise in the participation rate. Moreover, recent price data also show an increase in core inflation, implying that it is no longer too far off the 2% target. In spite of all disturbing factors, the US economy is thus moving in the desired direction. The Fed statement due for release after the meeting should also reflect this.
Moreover, the Fed will publish updated FOMC projections. With inflation markedly on the rise recently, expected core inflation (currently +1.6% by end-2016) is likely to be revised upward. As the Fed is likely to pause in March – probably in contrast to earlier plans – the FOMC members are likely to expect less interest rate hikes than in December. We are looking for three steps to be featured into the dot plot each in 2016 and 2017. This would imply two steps less than before but still a lot more than priced into the market.”
(Market News Provided by FXstreet)