Fed to raise rates in June – Lloyds Bank

Hann-Ju Ho, Research Analyst at Lloyds Bank, notes that markets are pricing a high probability of over 90% of a June rate rise by US Fed, according to Fed funds futures on Bloomberg

Key Quotes

“The Federal Reserve left monetary policy unchanged after the FOMC meeting on 3rd May, as widely expected. The implication of a largely unchanged statement is that a rate hike on 14th June is still very much on the cards. Notably, the Fed said that the slowing of Q1 economic growth is “likely to be transitory”. A range of Fed speakers since that meeting has reaffirmed its intention to raise interest rates twice more this year. Markets are pricing a high probability of over 90% of a June rate rise, according to Fed funds futures on Bloomberg, but are less convinced of a further rise in the second half of the year.”

“We expect the Fed to raise policy rates two more times this year, in June and September, to 1.50% and three times in 2018 to 2.25%. With interest rate rises well under way, the Fed is expected to start unwinding its asset holdings built up as a result of its QE policy. This could be achieved by tapering reinvestments of maturing assets, potentially starting as early as the back end of this year. More details will be forthcoming in the coming months, with concrete proposals possibly emerging after the September FOMC meeting.”