U.S. Fed to stand pat in May, likely to hike in June and September – Barclays

The FOMC, during its meeting in May, is likely to keep the policy on hold, noted Barclays in a research report. The U.S. Fed’s main challenge might be to acknowledge the weakness in incoming data while continuing to hint its plans for normalization remain in place. According to Barclays, the U.S. Fed might further hike rates twice in 2017, on in June and one in September.

It also expects balance sheet runoff to start in September. There is possibility that subdued data might derail a June hike; however, the bar to unsettling the Fed’s plans is higher as compared to the previous years.

Meanwhile, the U.S. first quarter GDP growth is expected to have decelerated again. According to Barclays, the economy is expected to have grown 1 percent. Housing and business investment are expected to be the bright spots, but the committee might acknowledge the decelerating activity and personal spending. The FOMC might state that these decelerations are temporary.

While the growth in employment decelerated in March, the U.S. Fed is expected to state that a wide range of indicators imply labor markets have continued to improve. The Labor Market Conditions Index of the U.S. Fed has risen in each of the last three months.