U.S. Fed likely to keep interest rate on hold in January

U.S. Fed is set to meet tomorrow for interest rate decision. According to a TD Economics research report, the Fed officials are expected to almost certainly keep the target range for the funds rate at 1.50-1.75 percent, a second consecutive meeting with no change after three straight 25 basis points easing.

“We expect changes to the FOMC statement to be fairly minor, resulting in a similar message to the one sent in December”, said TD Economics.

There is a certain relief amongst officials that trade tensions have alleviated and their base case is expected to still be for an extended pause, but they possibly still see more downside risks than the upside risks.

On the contrary to the funds rate, officials are expected to announce a 5 basis point rise in the IOER rate to 1.60 percent to better align the effective funds rate with the mid-point of the target range.

“Fed officials will (rightly in our view) insist that the change is “technical,” as the effective rate has been running below the 1.625% target range midpoint. Moreover, as usual, the IOER rate will be relegated to the separately released monetary policy “implementation note,” and not the FOMC statement itself”, added TD Economics.