Will The Fed Hike Interest Rates Tomorrow?
On Wednesday afternoon at 2 p.m., the Federal Open Market Committee, a subgroup of the Federal Reserve, will release its economic projections for the next two years. The figures will include expected growth and inflation rates.
In addition, the Fed will issue an official statement and address the press, disclosing the body's decision on whether or not to raise interest rates. Short-term rates have sat at near-zero levels since the financial crisis.
Benzinga tapped the minds of two economic experts to get their thoughts ahead of the big day.
JJ Kinahan, Chief Strategist At TD Ameritrade
Kinahan, for one, said he expected to hear "more of the same from the Fed."
"They'll probably talk about how they're going to look at the numbers," he added, and carefully consider the available data before making a decision on interest rates.
According to Kinahan, it's still too early for a rate hike.
Although the May retail sales report that came out last week was "very positive, it's still only one month," he said, adding that the Fed will continue to desire consistently strong consumer spending, which he called the missing piece of the puzzle. That, Kinahan explained, is necessary for a rate increase.
On the flip side, the housing market continues to perform well, he said. Although housing starts for May were slightly fewer than expected, building permits numbers smashed expectations, increasing by 12 percent versus predictions of a 3.5 percent decline.
Current data indicates a 56 percent chance of a 25bp increase in rates on Wednesday, Kinahan added. The chance of a 25bp hike in July is 59 percent.
Adam Sarhan, CEO Of Sarhan Capital
Sarhan predicted a "cautiously optimistic" attitude from the Fed -- it knows "the market—both Main Street and Wall Street—is still fragile." He doesn't think it will make any major moves to rock the boat just yet.
Neither piece of the Fed's dual mandate -- to maintain 2 percent annual inflation and foster economic growth -- are being met with only two weeks left until the halfway point of 2015, Sarhan added. "How are things going to get better once they raise rates?" he asked.
Sarhan also discussed the idea of a multi-faceted contractionary policy. "When the Fed raises rates, they're looking to do so 5, 10, 15 times. So the question isn't just if the economy can survive one increase."
When asked about the healthy housing market data Kinahan noted, Sarhan said he believes prospective homeowners are simply rushing to lock in favorable mortgages before rates rise. These strong numbers, he said, could be artificially inflated.
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