U.S. Fed likely to hike again in September, but risk of delay increased – Lloyds Bank

The Federal Reserve Open Market Committee hiked its interest rates for the second time in 2017 during its June meeting to 1-1.25 percent, and hinted its plan to continue with tightening policy. The ‘dot plot’ indicated a median expectation among policymakers of one further rate hike in 2017 and further rises in 2018 and 2019.

The Fed also stated the reduction in its inflated balance sheet might begin “relatively soon”, which can be as early as September. Fed Chair Janet Yellen played down the recent weakness in inflation that she linked to transitory factors, and instead repeated the expectation that the tightening labor market would eventually raise domestic price pressures.

However, more recently, the Fed officials’ comments have been mixed. Some of the officials have sounded warier on the outlook of the interest rate, hinting that evidence of a rebound in economic growth and inflation might be required before rates are hiked again. Fed funds futures are currently pricing just more than 40 percent probability of a third hike in 2017 and less than 5 percent positively of three further hikes by the end of 2018, noted Lloyds Bank.

“We maintain our central expectation of one further hike this year in September, but acknowledge that recent data have increased the risk of a delay in the next move to December”, added Lloyds Bank.

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